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A first-of-its-kind program that helps property owners finance energy and water-saving retrofits will continue taking new applications despite concerns from a federal agency about it being financially risky, Sonoma County supervisors decided Tuesday.

In a unanimous vote, supervisors reopened the county's 16-month-old Energy Independence Program, vowing to defend the money and momentum it has given to energy efficiency and the hundreds of construction jobs it has generated.

The county's program, the nation's first ongoing countywide effort, has loaned $30 million for more than 1,000 residential and commercial projects, including window and door upgrades, renewable power systems and water-saving projects.

Supervisors also vowed to fight against new rules that last week prompted the county and other local governments across the nation to suspend their residential and commercial retrofit programs.

"We truly are the model for the rest of the country," said Chairwoman Valerie Brown. "Since we were first out of the box, we should be the first to stand up to what is going on."

After urging supervisors to reopen the program in public comments, the contractors, solar panel installers and others supporters who packed the room gave the board a standing ovation.

Still, the move carries with it some significant risks for new program participants and could affect more than 100,000 home mortgage holders in Sonoma County with no connection to the program.

The latter, much larger group could be hurt because the Federal Housing Finance Agency has directed the two mortgage giants it oversees, Fannie Mae and Freddie Mac, to make affiliated lenders lower loan amounts for all borrowers in areas where energy retrofit programs such as Sonoma County's are offered.

Maximum loan amounts for all borrowers could go down by as much as 10 percent, county officials said.

"That would be huge," said John LeCave, branch manager at Fountain Grove Mortgage in Santa Rosa. "It may kick people out from being able to afford a loan. It could slow home purchases some and probably would eliminate another group of people that are looking to refinance and capitalize on low interest rates."

Some county officials acknowledged they are concerned about the possible effect on the wider population of local homeowners. But others said any large crackdown by lenders could amount to "redlining," the now-illegal practice of denying or increasing the cost of loans to certain areas based on race and other factors, and result in a lawsuit.

"There's no way to punish a whole community for having a program like this," said Brown, the board chairwoman.

The dispute hinges on the way the county and municipalities with similar programs — known as Property Assessed Clean Energy, or PACE — seek repayment for the money they lend to property owners for retrofits.

The county pays for the retrofits through municipal bonds and then places liens on the properties, which owners repay, with interest, through their property tax bill over a 20-year maximum term.

Such liens, like other property tax assessments, take priority over a mortgage if the borrower defaults.

The two-year-old Federal Housing Finance Agency, set up to oversee the once nearly defunct Fannie Mae and Freddie Mac, said the arrangement presented significant risk to the mortgage giants and their investors. It directed Fannie Mae and Freddie Mac — which control half the country's home loans — to make lenders tighten their loan requirements.

The new rules target residential borrowers and apply only to new PACE participants signing up after July 6.

But they cast a shadow over the future viability of programs such as Sonoma County's.

Under the rules, new program participants, including borrowers opting into a home with an existing PACE lien, face at least three possible scenarios when shopping for a first mortgage or looking to refinance, officials said:

* They have to demonstrate a higher income ratio, and their lender has to seek approval from Fannie Mae or Freddie Mac before approving a loan with a PACE lien.

* They have to pay higher interest rates for a loan unaffiliated with Fannie Mae or Freddie Mac, which tend to control the lowest-rate mortgages.

* Their bank could decide, even in the absence of any payment problems, that the mere existence of a PACE lien constitutes a default, based on conditions prohibiting priority liens in many mortgages.

County officials said they have been reassured by local banks that they do not intend to exert such control and that they want to support the county's program.

Powerful allies in Sacramento and Washington, D.C., are also working on a solution that officials hope will protect program participants and communities where energy retrofit programs are offered.

But while that happens, supervisors said they wanted to keep the county's program open for business, even with the wrinkles. Officials said they would immediately begin taking new applications for the program and resume work on about 330 existing applications that were frozen last week.

"This is about jobs," said Supervisor Shirlee Zane, echoing the comments of many in the audience Tuesday.

John Sutter, general manager of Applied Building Science in Santa Rosa, said he would be forced to lay off half his 16 workers if the county suspended the energy program indefinitely. Others contractors said 80 percent of their business comes through the Sonoma County Energy Independence Program.

"Go to the mat! Fight for SCEIP!" Sutter told the supervisors.

Others emphasized the program's environmental benefits.

Solar panels and other renewable energy projects now produce enough power to light 800 homes, while the program has cut annual greenhouse gas emissions in the county by 1,900 metric tons, officials said.

"We cannot let local efforts like this be squelched," said Chris Cone, of the Climate Protection Campaign, a coalition of Sonoma County groups that lobbies for policies that lower greenhouse-gas emissions.

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