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California sues Fannie and Freddie

Signs at Fannie Mae, Freddie Mac buildings

TEXT OF INTERVIEW

Steve Chiotakis: California Attorney General Jerry Brown is suing government-backed mortgage giants Fannie Mae and Freddie Mac. The suit claims Fannie, Freddie and their federal regulator are blocking a clean-energy home loan program that the state says will create jobs and stimulate the economy. The program allows local governments to make so-called loans to homeowners to cover the big costs of installing solar panels and other energy-saving improvements.

Nick Timiraos is a reporter for the Wall Street Journal. He's live with us from Washington to talk about it. Hi Nick.

Nick Timiraos:Thanks for having me.

Chiotakis: You got it. What does the state of California say Fannie and Freddie are doing to thwart this program?

Timiraos:Well, there's a lot of concern that the states that have come up with this novel financing mechanism to let folks improve their homes, get solar panels, energy-efficient appliances and they pretty well set it down that it's going to be very difficult now for these programs to go ahead, because Fannie and Freddie are saying communities that continue to have these initiatives in effect, well, we're going to make it much harder for anybody to get a loan in those communities. ANd that's why Attorney General Brown has decided to challenge the companies and their regulators.

Chiotakis: These local loans are called "Property Assessed Clean Energy loans," these PACE loans, right? Why are Fannie and Freddie concerned about those?

Timiraos: Cities lend money to home owners and the home owners pay it back over 10 to 15 years. But these loans are adhered to the mortgage, which means that the home owner defaults, the city will be paid ahead of the mortgage company or the bank, whoever owns that loan. And mortgage lenders say, "Look, that's cutting in line in and you don't want to borrow money, if you're not sure that the terms of the agreement are going to change later on." If somebody goes out and gets $30,000 in debt to put on a solar panel and that pushes Fannie and Freddie back and they could lose money, because of that.

Chiotakis: Right, the local and state loans would get paid back first in the event of a foreclosure.

Timiraos:That's right.

Chiotakis: Well, we thank you, Nick Timiraos, a reporter for the Wall Street Journal, for your time this morning from Washington.

Timiraos: Thank you.

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I understand that cities/counties usually get priority over lenders for assessments like sewer improvements and lenders are OK with that because generally you can't build a home without sewers. But, as desirable as it may be, energy saving devices are not mandatory so it is understandable that a lender will choose not to be second in line. If the result will be terrific for California, why not have the state provide that these improvement liens are subordinate? Remember, to the extent that there is a loss on a Fannie insured loan, some taxpayer in Iowa bears part of the loss; not just Californians!

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