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.
As an example, he said, in a foreclosure on a home with $10,000 worth of energy improvements, the county would seek only $500, plus interest, for each year of unmade payments.
Still, he said, the county on June 1 began alerting program applicants of the potential problem should they later sell or refinance their homes. "This just adds one more level of confusion and doubt, and we do anticipate some level of slowdown," Dole said.
Williams and her husband received no warning on May 19 when they signed their contract for $57,000 to finance their solar panels and related equipment. "If they had just said to us, &‘You might have trouble getting a new loan on your house,' that probably would have stopped us right in our tracks," Williams aid.
Dole explained that he didn't warn applicants earlier because a federal official on May 13 had assured him that "a solution would be out in days" and the housing finance agency "did not want to harm our program or our property owners."
However, the county started notifying applicants after a few weeks without further response from the federal agency. Six weeks later, Dole is still waiting for that response.
Reps. Mike Thompson, D-St. Helena, and Lynn Woolsey, D-Petaluma, are among the those who have urged a solution. Thompson said Friday that the federal housing officials understand the importance of energy retrofit programs.
"I'm told they think they're pretty close to that solution," Thompson said.
On Friday, two powerful Democrat congressmen, Energy and Commerce Committee Chairman Howard Waxman and Financial Services Committee Chairman Barney Frank, directed the housing finance agency to provide by July 12 a timeline for resolving the concerns.
Waxman and Frank raised the possibility that under the current federal housing position, all homeowners participating in an energy retrofit program "are now in jeopardy" of violating the terms of their current mortgages. Dole, however, said the federal housing officials have suggested their directive was only for new mortgages, not existing ones.
In the meantime, at least one local bank, Santa Rosa's Exchange Bank, will continue to make new home loans on properties with retrofit program liens. Already Fannie Mae and Freddie Mac have declined to purchase one such loan, so the bank kept it in its own portfolio, officials said.
"We think it's a good way to support the county," said bank President/CEO Bill Schrader.
Deke Dekay, a Healdsburg real estate agent, said he made $11,000 worth of energy improvements on a Geyserville home purchased earlier this year. When he recently was selling the investment property, the lender at the last moment refused to give a loan with the energy lien in place. The buyer agreed to come up with most of the extra money needed to pay off the county debt.
"I can't imagine that the rules are going to stay the same," Dekay said of the federal position. "It would do in" the county energy program.
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