It works by allowing property owners to pay for energy projects through an addition to their property tax bill, paid back over 15 to 20 years. If the owner sells the property after, say, installing a $15,000 solar array, the unpaid balance is passed on to the new owner (who also reaps the electricity-bill savings). In this way PACE overcomes two major barriers to greening buildings: high upfront costs and fear that owners will lose out if they move before their investment has paid for itself.

The Obama administration has endorsed PACE with $100 million in stimulus-act funding. Twenty-two states have passed legislation allowing and encouraging municipalities to start PACE programs. San Francisco, Sonoma and Placer counties in California, and Boulder County in Colorado have all recently launched programs, and Los Angeles and San Diego are set to begin ones later this year.

But they’ve all come to a sudden halt after Fannie Mae and Freddie Mac, the government-sponsored mortgage-finance corporations, sent a cryptic letter [PDF] to lenders on May 5 warning them away from PACE programs.

At issue is what gets paid first if a borrower defaults — the mortgage or the clean-energy assessment? Tax assessments have senior lien status to mortgages, meaning they must be paid off first. Such assessments are typically used to fund public projects such as sewers, sidewalks, and schools. Fannie and Freddie, which guarantee more than half of the nation’s $11 trillion in mortgages, contend that home energy improvements shouldn’t get priority over mortgages.

In their letter, Fannie and Freddie promise “additional guidance,” but a month and a half later, no clarification has come.

In the meantime, PACE programs are delayed and no new ones have come online.

“If this doesn’t get resolved, PACE is dead,” said Adam Browning, director of the Vote Solar Initiative, a California advocacy group.