Sonoma County has suspended an innovative 16-month-old program to help property owners finance solar installations and other energy-saving retrofits after a federal agency announced Tuesday that such programs present a risk to giant government-chartered mortgage lenders.
The decision prevents new applications and freezes 578 pending applications with the county's Energy Independence Program. It does not affect participants who signed their deals with the county before Tuesday.
Still, the suspension of new business — and the federal guidelines prompting it — are a significant blow to the momentum and money flowing toward energy efficiency and green building locally, said county officials, contractors and others.
Some experts say the new guidelines also could affect many mortgage holders with no connection to the county's program by lowering loan limits.
"We were astounded, with all the emphasis the federal government is putting on energy efficiency &#8230; that the program would be deemed unacceptable," said Valerie Brown, chairwoman of the Sonoma County Board of Supervisors.
"It's just a disaster," said Craig Thompson, vice president of the Redwood Empire Redmodelers Association. Thompson said that a dozen of the association's 75 members have invested thousands of dollars each to gain certification in energy retrofit work since the program started in March 2009.
"That investment is now lost," he said.
The county initiative is one of number of government-financed home and business retrofit programs called Property Assessed Clean Energy, or PACE, that have been authorized by 22 states and supported by the Obama administration with $150 million in stimulus funding.
Sonoma County's program, the nation's first ongoing countywide program, has loaned $30 million for more than 1,000 residential and commercial improvement projects, including window and door upgrades and renewable power systems such as rooftop solar panels.
The county pays for the retrofits through municipal bonds and then places liens on the properties, which owners repay over a 20-year maximum term, plus interest, through their annual property tax bill.
The Federal Housing Finance Agency said Tuesday that such arrangements "present significant risk to lenders" and "are not essential for successful programs to spur energy conservation."
Federal officials took issue with the fact that PACE liens, like other property tax assessments, take priority over the mortgage if the borrower defaults.
County officials have said the money at stake isn't that much. In a foreclosure on a home with $10,000 worth of energy improvements, for example, the county would seek only back taxes — $500, plus interest, for each year of unmade payments — and not the full amount of the project debt, according to officials.
So far, no borrowers with a PACE lien have defaulted in Sonoma County, according to officials, and county records show that homeowners participating in the energy retrofit program are half as likely to default on their tax bill as non-participating homeowners.
A spokeswoman for the Federal Housing Finance Agency was not able to determine Wednesday how much money lenders have lost or stand to lose because of loan defaults associated with PACE programs.
In May, Fannie Mae and Freddy Mac, the two mortgage giants overseen by the Federal Housing Finance Agency, sent letters to affiliated lenders saying the energy liens could not take precedence over a mortgage but offered no guidance on how to handle PACE loans.
On Tuesday, the agency directed the two lenders to significantly tighten its loan requirements for new borrowers who have a PACE lien.