Calif. AG sues feds over renewable energy loans

California attorney general Jerry Brown speaks during a press conference where he announced a lawsuit he filed against Wells Fargo affiliates April 23, 2009 in San Francisco, California.
California attorney general Jerry Brown speaks during a press conference where he announced a lawsuit he filed against Wells Fargo affiliates April 23, 2009 in San Francisco, California.
Justin Sullivan/Getty Images

State Attorney General Jerry Brown sued the federal government Wednesday, asking a judge to stop government-sponsored mortgage buyers from blocking a program that lets homeowners pay for energy-efficient improvements through increased property taxes.

Brown's lawsuit argues that Fannie Mae and Freddie Mac's opposition is forcing California counties to back off plans to provide the incentives. He sued the buyers and their regulatory agency, the Federal Housing Finance Agency, in Oakland U.S. District Court.

The voluntary Property Assessed Clean Energy program would encourage homeowners to install solar panels, better insulate their homes and take other steps to improve energy efficiency, Brown said. Homeowners pay for the improvements through their property tax assessments over a decade or more.

Fannie Mae and Freddie Mac say the programs could give counties top priority to be repaid if homeowners default on their mortgages. As a result, they said they could not buy or guarantee mortgages on properties that participate.

The Federal Housing Finance Agency affirmed that legal interpretation July 6.

"Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage," Acting Director Edward J. DeMarco said Wednesday.

DeMarco said his agency will fight Brown's lawsuit in order to protect taxpayers, lenders and both mortgage programs. He said in a statement that California's program would put homeowners at financial risk.

Freddie Mac spokesman Brad German and Fannie Mae spokeswoman Janice Smith declined to comment.

Brown said in a written statement that the federal programs are "throwing up impermeable barriers to bank lending that creates jobs, stimulates the economy and boosts clean energy."

He announced the lawsuit in San Diego. San Diego County and about half of California's 58 counties were offering or preparing to offer the incentives, but they stopped after the federal programs warned in May that they could violate federal rules.

Brown argues in his lawsuit that the government incorrectly interprets the program as providing loans. He contends in his lawsuit that they are classified under California law as tax assessments, which would require new owners to take over the payments if a home is sold before the improvements are paid off.

Other states have or are considering allowing similar programs. But as a result of the federal interpretation, some lenders started requiring homeowners to repay the full amount of their improvements before they could sell or refinance their homes.

The uncertainty led counties to halt the programs while Brown, Gov. Arnold Schwarzenegger and the state's congressional delegation lobbied the Federal Housing Finance Agency to permit the incentives.

California's program promotes energy independence, Schwarzenegger said in a statement backing the lawsuit. Doing away with the program "would be preposterous," he said.

Congress created Fannie Mae and Freddie Mac to buy mortgages from lenders and package them into bonds that are resold to investors. They own or guarantee about half of all mortgages, or nearly 31 million home loans worth about $5.5 trillion.

The suit asks a federal judge to rule that California law should govern the program and order Fannie Mae and Freddie Mac to let the program go forward under that interpretation.

The federal government's stance could cost California more than $100 million in federal stimulus money, Brown said.

The state has devoted millions of dollars in federal stimulus and federal energy efficiency grant money to the programs, Brown said. State lawmakers approved legislation by Democratic Sen. Fran Pavley creating a $50 million fund to encourage the energy efficiency program, and Schwarzenegger signed the bill into law in April.

The program was just getting under way but was proving popular before it was halted, Brown said.

Sonoma County had financed more than 800 solar and other projects worth more than $30 million. Placer County was seeing about $2 million a month in applications before the program abruptly stopped, stalling 33 applications worth about $800,000. San Diego's program was supposed to start this summer, but Brown said it has been suspended indefinitely, leaving more than 100 people trained in energy retrofits without jobs.

U.S. Department of Energy spokeswoman Niketa Kumar could not immediately say how many other states started similar programs.

(This version CORRECTS that lawsuit was filed in Oakland, not San Francisco.)

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