County green program fading to black?

The county’s AB 811 loan program looked like a great way to help L.A. County property owners go green.

Named after 2008 California legislation, AB 811 created an innovative way for local governments to help home owners finance energy-saving retrofits—from air-tight windows to solar panels—through assessments on property tax bills. More than 50 cities in the county signed on to the plan, which officials also predicted would create thousands of green-collar jobs.

But now, despite all the plans and hoopla, the county’s AB 811 energy program has been short circuited, along with similar programs in about 20 other states. The reason: federal mortgage regulators have called such property tax-based programs a threat to the safety of home mortgages.

In a July 6 statement, the Federal Housing Financing Authority said that many energy retrofit programs that rely on property tax assessments “present significant risk to lenders and secondary market entities.” Since FHFA regulates Fannie Mae, Freddie Mac and 12 Federal Home Loan Banks, the federally-chartered corporations that own most home mortgages, their concerns effectively halted programs everywhere.

In light of the FHFA’s resistance, the Board of Supervisors unanimously passed a motion this week by Supervisor Zev Yaroslavsky calling for a halt or reduction in spending on the AB 811 program. The motion urged the Chief Executive Office, the Internal Services Department and Office of Sustainability to push for legislative solutions at the state or federal level to answer the federal mortgage regulator’s objections.

California Atty. Gen. Jerry Brown, meanwhile, filed suit Wednesday in federal court against FHMA, Fannie Mae and Freddie Mac in an effort to restart the program.  Brown, in a San Diego press conference, accused federal mortgage officials of engaging in “regulatory strangulation of the state’s grass-roots program.”

The suit argues Fannie Mae and Freddie Mac rules do not bar PACE-style assessments. In the suit, Brown, who is the Democratic candidate for governor, is asking the court to issue an injunction barring the mortgage corporations from “taking any adverse action against any mortgagee who is participating, or may participate, in a PACE program under California law.”

The White House and U.S. Department of Energy favored the so-called Property Assessed Clean Energy, or PACE, programs but were unable to convince federal mortgage regulators to get on board. (A rundown on the debate from the Department of Energy can be found here.)

The sticking point came over the arcane but important question of which loan would be paid first in case of default. Because the energy retrofit loans are classed as property-tax assessments, they take the “first lien” position and have priority over a home’s mortgage when the worst happens.

First lien priority doesn’t upset mortgage lenders when the property assessments are small and paid off quickly, as when governments tap residents to pay for sewers.  But when the assessments amount to tens of thousands of dollars paid over many years, the energy loans could “disrupt a fragile housing market and…raise safety and soundness concerns,” the FHFA concluded.

The new loan restrictions most directly affected home loans. Loans for retrofits of apartments or businesses may be able to go forward, pending further review by the county.

The loan program was to be the centerpiece of the Los Angeles County Energy Program, which also included consumer education, facilitation rebates from utility companies for retrofits and creation of one stop shops to streamline permitting for energy efficient construction. The AB 811 setback won’t derail those efforts.

Howard Choy, general manager of the county’s Office of Sustainability who is responsible for setting up the county’s energy program, remains optimistic that the setbacks are temporary.

“From the folks I’ve talked to, we think this issue is going to get resolved,” said Choy, perhaps in federal legislation introduced in 2011. “This type of program has no conservative or liberal slant to it. It’s all about using loans to homeowners that will be paid back, and it’s going to create jobs.”

Posted 7/14/10