Catherine Williams and Stephen Parsons used a Sonoma County energy retrofit program this spring to finance a solar energy system for their home outside Sebastopol.
A few weeks later a lender told them they couldn't refinance their home.
The couple is caught in a dispute that pits federal housing officials against a burgeoning national energy retrofit movement, generally known as Property Assessed Clean Energy. In tension are two national goals: on the one hand, reducing lending risks from home foreclosures and, on the other, creating green jobs and reducing energy consumption.
Williams said she has been told "there's really no chance of us being able to sell our house or refinance our house" due to their participation in the Sonoma County Energy Independence Program. Given today's historically low rates, she maintains, the inability to refinance could cost the couple "tens of thousands of dollars" over the next 30 years.
Sonoma's program, which allows special government financing for solar power and other energy-saving improvements, was the first countywide program in the nation.
To date the county has loaned $30 million for 900 improvement projects. Property owners repay the funds over 20 years, plus interest, with their annual property tax bills.
Similar efforts are gearing up around the state and the nation, some benefitting from federal stimulus aid.
By year's end, roughly three out of four California homeowners may be able to seek financing for such improvements. And more than 20 states have authorized such programs, as California did two years ago.
But in early May the federally backed agencies Fannie Mae and Freddie Mac put a cloud over such programs by telling lenders they won't allow the debt from such government financing to receive preference over the mortgages they purchase.
Since then, lenders have told a handful of county program participants that their energy financing must be paid off completely before a new mortgage will be provided for a sale or refinancing.
Other counties, including San Francisco, have put their energy programs on hold.
And Gov. Arnold Schwarzenegger and other state and federal officials have lobbied housing officials to resolve the dispute in a way that doesn't kill the energy programs.
"I think it's safe to say that Fannie Mae and Freddie Mac threw a wrench in the works," said Cisco DeVries, president of Renewable Funding, an Oakland company that provides third-party administration to many local energy programs.
At the heart of the conflict is whether the energy retrofit debt is a loan or an assessment. The local and state officials maintain it is an assessment, similar to any school tax or water bond debt that stays with the property, not the homeowner. As such, the local government gets paid first, before the mortgage lender, should a home go to foreclosure.
However, the federally backed agencies, which now purchase a majority of the nation's mortgages, are calling the debts loans. Further, they said in two May 5 directives that such debt may not be senior in the pecking order to any mortgage that Fannie Mae or Freddie Mac purchases.
Rod Dole, the county's treasurer/tax collector, suggested the amount of money at stake isn't as great as some might expect given the federal position. He pointed out that in a foreclosure, the county wouldn't seek the whole amount of the energy debt, only that owed for what are akin to back taxes.