The Ninth Circuit Court of Appeals has overturned a California district court’s determination that the Federal Housing Finance Agency (FHFA) improperly decided to cease allowing mortgage companies Fannie Mae and Freddie Mac to purchase mortgages of properties encumbered by property-assessed clean energy (PACE) liens. Cnty. of Sonoma v. FHFA, No. 12-16986 (9th Cir. 3/19/13). At issue was a 2010 order from FHFA, which is the receiver for the federal mortgage market participants, calling for purchases of such mortgages to cease. PACE programs are creatures of state law, and, generally, PACE liens are senior to any mortgage. FHFA determined that PACE liens presented an unacceptable risk for the federal mortgage holders.
Plaintiffs asserted that the change in federal policy was regulatory in nature and that FHFA failed to follow notice-and-comment procedures when it issued the guidance. The trial court agreed, but the Ninth Circuit, persuaded by Second and Eleventh Circuit decisions, held that FHFA was acting within its “broad powers as a conservator” when it decided not to allow further purchases of PACE-encumbered mortgages. The action was not therefore regulatory in character, and FHFA did not have to follow rulemaking procedures to issue its directive.