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Judgment Against FHFA Reversed on Appeal

A federal appeals court has overturned a lower court decision against the Federal Housing Finance Agency. At issue are loans on properties with special energy loans.

FHFA issued a directive in July 2010 that prevented Fannie Mae and Freddie Mac from buying loans on properties encumbered by Property Assessed Clean Energy loans.

The regulator was concerned about PACE loans taking priority over mortgages financed by the pair of secondary lenders.

Fannie and Freddie issued letters to lenders the following month indicating that they would no longer purchase mortgages with an outstanding PACE loan.

So the plaintiffs — including the state of California, the county of Sonoma and the city of Palm Desert — filed a federal lawsuit contending that FHFA acted as a regulator, and not as a conservator, when it issued the directive. As a result, FHFA should have gone through the rulemaking process before issuing the directive, according to the lawsuit.

The U.S. District Court for the District of Northern California ruled in favor of the plaintiffs and ordered FHFA to complete a formal rulemaking under the Administrative Procedure Act.

FHFA filed an appeal, and the ninth circuit vacated the district court’s order.

“The panel held that the FHFA’s decision to cease purchasing mortgages on PACE-encumbered properties is a lawful exercise of its statutory authority as conservator of Freddie Mac and Fannie Mae,” the decision stated. “The panel held that the courts have no jurisdiction to review actions that the FHFA takes as a conservator, and dismissed the case.”

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