Keeping PACE – California Sues Fannie Mae
California yesterday commenced a lawsuit seeking to prevent the Federal Housing Finance Agency and its arms Fannie Mae and Freddie Mac from interfering with California’s implementation of the PACE (Property Assessed Clean Energy) program for financing the greening of existing structures. The lawsuit is intended to prevent implementation of recently announced policies that could significantly deter future use of the PACE program and delay or prevent clean energy retrofits of existing residential and commercial buildings. That interference could also cost California clean energy businesses income and jobs.
The PACE program, which has been encouraged by the federal Department of Energy, allows property owners to finance energy efficiency or renewable energy improvements to their property by long term borrowing on publicly issued low interest bonds that are repaid on their property tax bills. The program is designed to remove high upfront costs of green improvements as a primary reason for property owners foregoing retrofits that are, in the long run, financially sound for the operation of their property and good for the environment.
After the Federal Housing Finance Agency sent a warning letter about PACE programs to Fannie Mae and Freddie Mac in May 2010, the California Attorney General sent an open letter to the FHFA seeking confirmation that Fannie Mae and Freddy Mac would not interfere with California’s burgeoning PACE program. That letter stressed the importance of PACE to the implementation of federal stimulus in California.
Instead of giving the assurance requested by California, on July 6, 2010, the Federal Housing Finance Agency issued a policy statement directing Fannie Mae and Freddie Mac to significantly tighten requirements for new loans in areas that have implemented PACE programs.
Alleging that those requirements significantly interfere with continued implementation of California’s PACE program, the California Attorney General yesterday filed a lawsuit in federal court seeking to prevent Fannie Mae’s and Freddie Mac’s implementation of the FHFA policy. FHFA has said that it will defend its policies. Until the matter is clarified, it will be difficult for PACE projects to proceed. While the FHFA policy statement grandfathers existing PACE properties, it will be more difficult to obtain Fannie Mae or Freddie Mac financing in jurisdictions that allow PACE financing of green improvements.