Mixed Messages on Green Homes

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Fannie and Freddie have taken on one of our Wonking Class Heroes, and Jerry is riding to the rescue.

A voluntary program that would let homeowners pay for solar roofs and other energy-saving improvements through an increase in their property taxes is under fire from Fannie Mae and Freddie Mac, the government-backed mortgage buyers that control half the mortgages in the U.S.

The Associated Press reports Fannie Mae and Freddie Mac will not buy or guarantee mortgages on properties where homeowners are paying for solar panels or insulation or other energy-efficient fixes through long-term property tax assessments. They argue that the assessments would get in the way of their repayment rights if a loan defaults, default being a concept they certainly understand.

In response, California Attorney General Jerry Brown sued the federal government — the same federal government in which the vice president extolled the program and called for a national program — asking a judge to let the program go forward.

California was the first to institute the program, known as Property Assessed Clean Energy, or PACE. To date, 23 states have laws creating similar programs, and others are considering them.

As reported last summer in Miller-McCune, the California program was the brainchild of Francisco De Vries, a Berkeley city official who was looking for ways to reduce greenhouse gases. De Vries invented a financing arrangement under which the city could issue special low-interest utility bonds to cover the upfront costs of solar roofs, which can amount to as much as $30,000. Interested homeowners could pay the money back through a tax assessment levied on their property over 20 years.

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In a follow-up story last fall, we reported that Vice President Joe Biden liked the idea so much that he made a pitch for municipal energy financing on the lines of the Berkeley model and recommended that the U.S. Department of Energy back it.

Brown, a Democrat who is running for governor, said the federal government was “throwing up impermeable barriers to bank lending that creates jobs, stimulates the economy and boosts clean energy.” The state could lose $100 million in federal stimulus funds if Fannie Mae and Freddie Mac prevail, Brown said. California Gov. Arnold Schwarzenegger said it would be “preposterous” to do away with the incentives; in April, he signed into law a $50 million fund to support the energy-saving program.

Fannie Mae and Freddie Mac contend that counties will get top priority for repayment if homeowners default on their mortgages, a legal interpretation that is shared by the Federal Housing Finance Agency. “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 told The Associated Press.

Brown argues that homeowners who participate in the program are paying tax assessments, not loans, and that new owners would be responsible for taking over outstanding payments on the improvements.

The veep seemed to have understood it that way. “This arrangement attaches the costs of the energy retrofit to the property, not the individual, eliminating uncertainty about recovering the cost of the improvements if the property is sold,” an October report released by Biden said.

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