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California Attorney General Jerry Brown filed suit July 4 against federal lenders Fannie Mae and Freddie Mac and their controlling agency, the Federal Housing Finance Agency, over their actions blocking the state's program to fund homeowner environmental improvements paid for with a tax surcharge. The program, the Property Assessed Clean Energy or PACE, has drawn $150 million in federal stimulus money in California and 22 other states.
According to the New York Times, California's PACE program allows homeowners to have the state or city pay for energy or water saving upgrades to their homes. The home then has a lien placed on it which would be a "senior loan" to the home's mortgage. Fannie and Freddie believe these to be loans that "fail to operate with sound underwriting guidelines and consumer protections," and have refused to fund mortgages on properties with the PACE financing attached. They see the 'loans' a credit risk to the mortgage holders.
The complaint by the state, Bloomberg reports, characterizes the agencies' actions like this:
"Because Fannie Mae and Freddie Mac control the mortgage resale market, lenders will not issue mortgages that do not meet Fannie Mae's and Freddie Mac's requirements. As a result, Fannie Mae's and Freddie Mac's determination -- which misrepresents California law -- essentially forecloses residential Property Assessed Clean Energy programs."
The loss of this program will not only cost the state stimulus funds and the jobs supplied by the program, but will have an environmental impact as well. In what the Times calls a "novel allegation," the state suit claims the FHA failed to comply with federal law since it did not complete an environmental review on the effects that constricting the PACE program would have on the environment, as required by the National Environmental Policy Act.
The housing agency said it would mount an aggressive defense. "In keeping with our safety and soundness obligations, the Federal Housing Finance Agency will defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac," Edward DeMarco, the agency's acting director, said in a statement.
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