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Attorney General Jerry Brown fights for PACE energy efficiency program

July 14, 2010 |  1:31 pm

A week after federal regulators blocked financing programs for home energy efficiency retrofits around the country, California officials are using different tactics to try to change their minds.

Some, like state utility officials, have sent pleading letters. But California Atty. Gen. Jerry Brown said Wednesday that he is taking the government straight to court.

Brown is initiating “major action” against the Federal Housing Finance Agency to restart the stalled Property Assessed Clean Energy programs, known as PACE. The programs encouraged homeowners to use bond-backed property tax assessments to install solar panels and make insulation improvements. The funds are paid back over a decade or more through a senior lien attached to the property, which takes precedence over an existing mortgage in the case of a foreclosure.

But on July 6, the Federal Housing Finance Agency issued a statement saying that PACE loans presented “unusual and difficult risk management challenges” for lenders, servicers and mortgage securities investors in a “fragile housing finance market.”

The decision, which effectively suspended all PACE programs nationwide, agreed with concerns voiced by federally controlled mortgage giants Fannie Mae and Freddie Mac in May. The federal agency directed the lenders to avoid the programs.

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, a former California governor who is now the Democratic gubernatorial nominee for the fall election.

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.

The move was a “body blow” to the state’s “landmark efforts” in energy efficiency, according to a letter to the California Congressional Delegation on Tuesday.

Michael R. Peevy, president of the California Public Utilities Commission and Commissioner Dian M. Grueneich wrote that more than $450 million in retrofit projects are in limbo in more than 200 communities across the state.

Thousands of local construction jobs and other positions are now at risk, as are other state energy efficiency and low-income programs that had been molded to work with PACE, the officials said.

The letter was also sent to Treasury Secretary Timothy Geithner, Energy Secretary Stephen Chu, Acting Director Edward DeMarco of the Federal Housing Finance Agency and the chief executives of Fannie Mae and Freddie Mac.

Supporters claim that the programs help erase the heavy upfront costs that traditionally bar homeowners from going green, while cutting back on utility bills and stimulating the economy. Local officials have said that the tax assessments have also funded road paving and sidewalk improvement efforts in the past.

"They 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," said Martha Amram, a senior fellow at the Milken Institute, a Santa Monica-based economic think tank. "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.

Federal regulators believe that the programs tamper with the valuations for mortgage-backed securities and aren’t based on loan recipients’ ability to pay. PACE’s ability to cut back on energy use is also debatable, they said.

"Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections," DeMarco said in a statement Wednesday. "Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage.”

-- Tiffany Hsu

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