(CN) – Federal housing officials effectively ended a stimulus program to fund energy-conservation projects without due notice, a federal judge ruled.
California, Sonoma and Placer counties, the city of Palm Desert, and the Sierra Club sued the Federal Housing Finance Agency (FHFA), the Federal National Housing Association (Fannie Mae), the Federal Loan Mortgage Corporation (Freddie Mac), and their directors in 2010.
They claimed that the agencies had discredited the Property Assessed Clean Energy (PACE) program in a series of letters to lender groups around the country, and that they had violated federal law by adopting the policy without going through the required notice and comment period.
Part of the American Recovery and Reinvestment Act of 2008, the PACE program is meant to help local governments fund energy-efficiency and renewable energy projects. Property owners that benefit from the projects pay back an up-front loan from the government through property assessments secured by a lien that takes priority over any mortgage loan.
Because PACE liens take priority over mortgage loans, the government said they make it more difficult to alienate encumbered properties, which endangers the security interests of entities that buy the mortgages as investments.
Figuring that such a structure would pose a risk to homeowners and lenders, the agencies adopted a policy not to buy mortgages involved in the program.
But before making that decision, the agencies should have gone through a notice and comment period, U.S. District Judge Claudia Wilken ruled.
“The FHFA’s directives on PACE obligations amount to substantive rule-making, not an interpretation of rules that would be exempt from the notice and comment requirement,” Wilken wrote last week in her 41-page ruling. “The notice and comment process must be followed.”
That process has been underway since January, based on a preliminary injunction granted by the same court last August. In June the FHFA issued a Notice of Proposed Rulemaking and Proposed Rule related to PACE programs, and a 90-day comment period ends in September.
Wilken declined to rule on the plaintiffs’ other claims, including that the policy is arbitrary, until that time.
She also rejected the agencies’ claim that their actions related to the PACE programs are exempt from judicial review.