The federal government's mortgage regulator has re-affirmed its opposition to a federally funded program designed to help homeowners lower their energy costs.

In an August 26 letter addressed to Rep. Ed Perlmutter (D-Colo.) and four other House members, acting director of the Federal Housing Finance Agency Edward DeMarco stated that despite "diligently" working to find a solution with Congress, as well as with state and local governments, the agency remains convinced that the "Property Assessed Clean Energy" (PACE) loans create too much risk for the two government-backed agencies it regulates, Fannie Mae and Freddie Mac, which buy and resell over half the nation's home mortgages.

FHFA has said it believes that because a PACE loan is typically attached to a home as a property assessment, it would have a "first lien" status that put it ahead of a defaulted mortgage for payoff.

"No satisfactory conclusion has been reached to address problems associated with liens created after a mortgage is in place, thereby transferring credit risk to banks, secondary market parties and investors in mortgage-backed securities," reads the August 26 letter in part. "FHFA, therefore, has determined that its guidance to its regulated entities must remain in place."

FHFA in early July issued a "guidance" to mortgage lenders around the country, telling them to avoid municipalities issuing PACE loans. Its effect was to halt PACE programs nationwide, and with them the creation of scores of new green jobs.  (See "Long Island Town Fights To Keep Energy Efficiency Program.")

PACE supporters say these "cash for caulkers" loans would simply need to be brought up to date, not paid off completely, creating minimal risk for Fannie and Freddie.  And there is some evidence that homeowners using PACE loans have a lower risk of foreclosure. According to a 2009 analysis for a major financial institution (not made public, but reported in July by Grist), homes built to federal Energy Star standards for energy efficiency had default and delinquency rates that were 11 percent lower than other homes.

Although the Obama administration funded PACE with $150 million in federal stimulus dollars, it has not stepped forward overtly to save it from FHFA's de facto termination of the program. Congressman Steve Israel (D-NY) told Grist in July that he had proposed a 300,000-home pilot project to FHFA, to test whether the agency's financial fears would hold up.  FHFA's latest missive suggests that this idea wasn't acceptable to the agency.

PACE was designed to cut energy use, lower utility bills for homeowners, reduce global warming pollution, and create green jobs. (See the Spring 2010 OnEarth story, "Home Energy Makeover.")  PACE loans financed the significant up-front costs of conservation retrofits and installation of clean energy systems. They were paid off over time by homeowners -- who meanwhile reaped immediate benefits of lower energy bills and more comfortable homes.

Follow the PACE story with OnEarth's continuing coverage.