One week ago, the nation's largest mortgage guarantors put an effective, popular, and Obama administration-backed home energy efficiency program into a coma. Yesterday, California's attorney general sued them to revive it. 

Jerry Brown, the Golden State's one-time governor and current A.G., filed suit on Wednesday against federal mortgage giants Fannie Mae and Freddie Mac, as well as the Federal Housing Finance Agency (or FHFA, which regulates both) over the Property Assessed Clean Energy program, known as PACE. As the Los Angeles Times reports,

Calling the move a “regulatory strangulation of the state’s grass-roots program,” Brown is suing the agency and the lenders to allow PACE programs to proceed. In the complaint, filed in U.S. District Court in Oakland, Brown says that the programs were mischaracterized as “loans” instead of “assessments” and improperly portrayed as violating Fannie Mae and Freddie Mac’s standard lending procedures.

The stakes are high, said Brown ... California could stand to lose more than $100 million in federal stimulus money, he said. San Diego’s idle PACE program has left more than 100 newly trained workers without jobs while clean energy companies around the state are facing layoffs.

 

Brown's move came one day after the New York town of Babylon announced its intention to sue FHFA over PACE (see "Long Island Town Fights To Keep Energy Efficiency Program").OnEarth wrote about Babylon's Long Island Green Homes project in its Spring 2010 issue.

One of the conundrums of the PACE debacle is that the program has been a centerpiece of stimulus programs promoted by the Obama administration's Energy Department -- which seems to have been silent on the FHFA's recent move.

PACE loans solve the major roadblock that most people face in improving home energy efficiency: the high up-front costs. Participants borrow funds from their city or town's PACE program, and use them to finance home energy efficiency improvements. Depending upon the local program, these retrofits can range from weatherization (thus PACE's "cash for caulkers" nickname) to solar energy systems. Energy bills drop, homes become more comfortably warm or cool, greenhouse gas pollution is curbed, and well-paying green jobs proliferate.

Homeowners typically pay back PACE loans in the form of property assessments, which are lower than the pre-retrofit energy bills. Everybody's happy, right?

Well, not the FHFA. The agency is worried that because PACE-related assessments stick to the property, rather than the individual homeowner, they would need to be paid off first in the event of a mortgage default, before funds were put toward the mortgage debt.

This is what FHFA considers an unacceptable risk to its mortgage buying and selling businesses. So it has instructed lenders to stay away from municipalities using PACE to promote energy efficiency retrofits.

Martha Amram, a senior fellow at the Santa Monica-based Milken Institute, told the LA Times that if PACE dies, towns and cities "can go back to traditional funding mechanisms, such as revolving funds, and piece-meal programs such as solar panels for pools or for traffic lights. But none of these are going to achieve any sort of retrofit revolution nor get the energy savings or green job creation envisioned by the Administration or financially-strapped states/cities."

Image: California Attorney General Jerry Brown, speaking at a clean tech event in San Francisco in 2009. Brown, a former California governor, is running for the office again in this year's gubernatorial campaign, on the Democratic ticket. Image courtesy Office of the Attorney General, State of California.