Cnty. of Sonoma v. Fed. Hous. Fin. Agency

• Citation: 710 F.3d 987
• Decision Date: 19 March 2013
• Docket Number: No. 12–16986.,12–16986.
• Parties: COUNTY OF SONOMA; People of the State of California, ex rel. Kamala D. Harris, Attorney General; Sierra Club; City of Palm Desert, Plaintiffs–Appellees, County of Placer, Intervenor–Plaintiff–Appellee, v. FEDERAL HOUSING FINANCE AGENCY; Edward DeMarco, in his capacity as Acting Director of Federal Housing Finance Agency, Defendants–Appellants, and Federal Home Loan Mortgage Corporation; Federal National Mortgage Association, Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

710 F.3d 987

COUNTY OF SONOMA; People of the State of California, ex rel. Kamala D. Harris, Attorney General; Sierra Club; City of Palm Desert, Plaintiffs–Appellees,County of Placer, Intervenor–Plaintiff–Appellee,

v. FEDERAL HOUSING FINANCE AGENCY; Edward DeMarco, in his capacity as Acting Director of Federal Housing Finance Agency, Defendants–Appellants,andFederal Home Loan Mortgage Corporation; Federal National Mortgage Association, Defendants.

No. 12–16986.

United States Court of Appeals, Ninth Circuit.

Submitted Dec. 22, 2012.^*

Filed March 19, 2013.

Stephen E. Hart, Federal Housing Finance Agency; Howard N. Cayne, Lisa S. Blatt and Asim Varma, Arnold & Porter LLP, Washington, D.C., for Defendants–Appellants.

Kamala D. Harris, Attorney General of California; Janill L. Richards, Supervising Deputy Attorney General; Jason A. Malinsky, Deputy Attorney General, Oakland, CA, for Plaintiffs–Appellees.

Appeal from the United States District Court for the Northern District of California, Claudia Wilken, Chief District Judge, Presiding. D.C. Nos. 4:10–cv–03270–CW, 4:10–cv–03084–CW, 4:10–cv–03317–CW, 4:10–cv–04482–CW.

Before: STEPHEN REINHARDT, JOHN T. NOONAN, and MARY H. MURGUIA, Circuit Judges.

OPINION

MURGUIA, Circuit Judge:

Defendant–Appellant Federal Housing Finance Agency (“FHFA”) is the regulator and conservator of Freddie Mac and Fannie Mae (the “Enterprises”). The Enterprises are government-sponsored entities that purchase and securitize residential mortgages. FHFA issued a “directive” preventing the Enterprises from buying mortgages on properties encumbered by liens made under so-called property-assessed clean energy (“PACE”) programs, which finance environmental improvements on residential properties—and in return take an interest in those properties senior to any mortgagees' interest. Plaintiffs–Appellees, including the State of California and several of its counties, are stakeholders in PACE programs. Plaintiffs–Appellees contend that FHFA acted as a regulator, and not a conservator, when it directed the Enterprises to cease purchasing mortgages on PACE-encumbered properties. And in acting as a regulator, Plaintiffs–Appellees argued in the district court, FHFA would require more than a fiat to order the Enterprises to stop buying mortgages on PACE-encumbered properties: as a regulator, Plaintiffs–Appellees contended, FHFA must issue a regulation to effectuate its order.

The district court entered a preliminary injunction requiring FHFA to complete a formal rulemaking under the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701, et seq., in order to implement its directive on PACE-encumbered properties properly. FHFA appealed, and we stayed the injunction insofar as it required FHFA to issue a final rule. We then deferred any further action on FHFA's appeal until after the district court ruled on the parties' motions for summary judgment. The district court entered summary judgment in Plaintiffs'–Appellees' favor, finding that FHFA “failed to comply with the APA's notice and comment requirement.” The district court enjoined FHFA to complete notice-and-comment rulemaking within 210 days from the issuance of its judgment. FHFA again appealed.

We now conclude that FHFA's decision to cease purchasing mortgages on PACE-encumbered properties is a lawful exercise of its statutory authority as conservator of the Enterprises. Because the courts have no jurisdiction to review actions that FHFA takes as conservator, we VACATE the district court's order and DISMISS the case.

I. BackgroundA. Housing and Economic Recovery Act of 2008

The Enterprises, Fannie Mae and Freddie Mac, purchase and securitize residential mortgages. They are governed by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (“Safety and Soundness Act”), 12 U.S.C. §§ 4501, et seq.

In 2008, Congress passed the Housing and Economic Recovery Act of 2008 (“HERA”), which amended the Safety and Soundness Act. Pub.L. No. 110–289, 122 Stat. 2654 (codified at 12 U.S.C. § 4511). HERA established the Federal Housing Finance Agency (“FHFA”), an independent agency charged with supervising the Enterprises and the Federal Home Loan Banks. FHFA has statutory powers as both the regulator and the conservator of the Enterprises. As regulator, FHFA must ensure that the Enterprises operate “in a safe and sound manner,” “foster liquid, efficient, competitive, and resilient national housing finance markets,” operate “consistent[ly] with the public interest,” and comply with all applicable laws. 12 U.S.C. § 4513(a)(1)(B). The FHFA Director “shall issue any regulations, guidelines, or orders necessary to carry out the duties of the Director.” Id. § 4526(a). FHFA's regulations are subject to APA notice-and-comment rulemaking. Id. § 4526(b).

HERA also grants FHFA the power to place the Enterprises into conservatorship, and FHFA did so on September 6, 2008. See12 U.S.C. § 4617(a)(2) (“[FHFA] may, at the discretion of the Director, be appointed conservator or receiver for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity.”). The conservatorships were the result of the economic downturn and housing market collapse, which eroded the value of the Enterprises' assets. FHFA has separate statutory powers as conservator of the Enterprises. As conservator, FHFA succeeds to “all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity.” Id. § 4617(b)(2)(A). HERA further enumerates other broad powers FHFA has as conservator, including to take actions “necessary to put the regulated entity in a sound and solvent condition” and actions as may be appropriate to “preserve and conserve the assets and property of the regulated entity.” Id. § 4617(b)(2)(D). FHFA has the “incidental power[ ]” to take “any action authorized by this section, which the Agency determines is in the best interests of the regulated entity or the Agency.” Id. § 4617(b)(2)(J)(ii).

HERA substantially limits judicial review of FHFA's actions as conservator. The law states: “Except as provided in this section or at the request of the Director, no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” Id. § 4617(f) (emphasis added). Accordingly, if the directive challenged here is a lawful exercise of FHFA's power as conservator of the Enterprises, the courts have no jurisdiction over Plaintiffs'–Appellees' claims, and this case must be dismissed.

B. Property–Assessed Clean Energy Programs

States—including California—and municipalities have long used their powers to assess levies on real property to finance community improvements, such as sidewalks and lighting. See, e.g., Cal. Const. art. 13D (establishing that governments may levy special assessments against real property to pay for permanent public improvements). In a more recent use of this assessment authority, legislatures have authorized state and local governments to implement PACE programs. The programs provide financing for individual home improvements aimed at reducing water and energy use and providing clean power. A government entity pays the cost of the retrofit and imposes an assessment on the real property in the amount of the improvement cost. The funds are raised through the sale of bonds, and assessment revenue is pledged to repay the bonds.

California authorized cities and counties to establish PACE programs in July 2008. Cal. Sts. & High.Code §§ 5898.12(b), 5898.20. Pursuant to California law, PACE assessments create liens on real property that have priority over mortgages. Property owners pay a portion of the assessment annually as part of their property tax payments. Id. § 5898.30. When the property is transferred, sold, or foreclosed upon, any amount that is delinquent is due. The remainder of the assessment remains as a lien on the property. Cal. Rev. & Tax.Code § 3712. Speaking generally, foreclosure of a higher-priority—senior—lien on property ( e.g., a PACE lien) terminates any junior liens on the property ( e.g., a mortgage purchased by one of the Enterprises). SeeRestatement (Third) of Property (Mortgages) § 7.1 (1997).

C. FHFA's Directive Regarding PACE programs

On June 18, 2009, FHFA's Director sent a letter about PACE programs to the leaders of associations representing state bank supervisors, credit union supervisors, residential mortgage lenders, state governors, and state legislatures. The letter described the “emerging trend” of PACE programs, and stated that the effect of the “first lien status” of PACE loans is “to impair the value of first mortgages to creditors and any subsequent holder of first mortgages and, at the same time, to create risks for homeowners.” The Director stated further that the programs may “create risks to homeowners by increasing borrower debt payments that could cause a greater possibility of default; [and have a] negative impact on the marketability of the home.”

On May 5, 2010, Fannie Mae and Freddie Mac each issued a lender letter to the home mortgage industry. The Fannie Mae letter stated that PACE loans generally have first lien priority over previously recorded mortgages and the Enterprises' Uniform Security Instruments prohibit loans with lien status senior to a mortgage's.¹ The Freddie Mac letter explained that energy-related liens may not be senior to mortgages delivered to Freddie Mac.

On July 6, 2010, FHFA issued a “Statement on Certain Energy Retrofit Loan Programs.” FHFA distinguished PACE “loans” from routine tax assessments in that their size and duration exceed typical local tax programs and lack the community benefits associated with taxing initiatives. FHFA stated that the loans present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed...