CENTRAL ISLIP, N.Y. (CN) – A Long Island town claims Fannie Mae and Freddie Mac “threaten the very existence” of green energy programs nationwide that help owners retrofit their homes. Despite the success of Property Assessed Clean Energy (PACE) programs, the Town of Babylon says, the federal mortgage insurers claim that PACE is “a risk to the home mortgage industry,” and now “refuse to purchase mortgages that are subject to PACE repayment obligations.”
In its federal complaint, Babylon says it began its Long Island Green Homes Program in 2008, to fund upfront costs of energy efficiency and renewable energy projects, “a significant part of the Town’s efforts to promote clean energy and green jobs.”
Under the program, participating homeowners are billed monthly for up to 10 years; the average term for repayment is 8.7 years.
“To date, there have been no delinquencies in LIGH repayment obligations,” Babylon says.
“Hundreds of houses have been retrofitted in the Town since the launch of LIGH in October 2008. The average house has installed efficiency measures with a 1.9 savings-to-investment-ratio (SIR), which means that, for the vast majority of participants, the savings generated by reduced energy costs meet or exceed the homeowner’s monthly repayment cost.
“At less than $9,000 for an average project, there have been no loan-to-value (LTV) ratios exceeding 5 percent. The average monthly repayment obligation is $91.56.”
Similar programs, usually known as PACE programs, “are in place or are being initiated across the country,” Babylon says.
“The Department of Housing and Urban Development and The Department of Energy have identified PACE Programs as eligible for over one billion dollars in federal stimulus funds,” according to the complaint.
Local governments in New York have received more than $166 million in stimulus money for PACE programs, and more than $1.5 million has gone to Babylon.
But despite the program’s track record and support from the Obama administration, Fannie Mae, Freddie Mac and other agencies now “claim that PACE and ‘PACE-like’ programs, including LIGH, are a risk to the home mortgage industry and, as such, now refuse to purchase mortgages that are subject to PACE repayment obligations,” according to the complaint.
“Recently issued directives and guidelines from defendants threaten the very existence of PACE programs nationwide,” the complaint says.
Babylon says this is nonsensical: “Energy efficiency improvements lower energy costs, making it more affordable for the homeowner to maintain the home. This reduces the risk of default and foreclosure. Energy efficiency and clean energy improvements also typically increase the value of the improved property. Therefore, participation by a homeowner in the LIGH program is beneficial (not detrimental) to a mortgagee.” (Parentheses in complaint.)
In directives to lending institutions, Fannie Mae and Freddie Mac have called PACE and “PACE-like” programs “loans,” rather than “assessments,” Babylon says.
“Because Fannie Mae and Freddie Mac erroneously view assessments as ‘loans,’ they incorrectly contend that PACE, LIGH and other similar programs are prohibited by the terms of the Fannie Mae/Freddie Mac Uniform Security Instruments,” according to the complaint.
Because Fannie Mae and Freddie Mac together “own or guarantee about one-half of all residential home mortgages in the United States,” their opposition “resolves to foreclose LIGH and PACE programs and undermines federal and New York state support for energy loans and energy retrofit programs,” according to the complaint.
Babylon claims the defendants have tortiously interfered with its contracts. It seeks declaratory judgment that the defendants violated the Administrative Procedure Act, the National Environmental Policy Act, and the 10th Amendment.
Defendants include the Federal Housing Finance Agency, the Federal Home Loan Mortgage Corp., the Office of the Comptroller of Currency, and officials in those agencies.
Babylon is represented by Erik Ortmann with Goldberg & Connolly of Rockville Centre.