Mortgage giants Fannie Mae and Freddie Mac were hit with a lawsuit Wednesday by California Attorney General Jerry Brown.

California is suing the GSEs and their regulator, the Federal Housing Finance Agency (FHFA), for refusing to support the Property Assessed Clean Energy program, or PACE, for homeowners to make energy improvements to their properties, such as installing solar panels or new climate control systems – a program which is strongly backed by the Obama administration.

FHFA Acting Director Edward J. DeMarco spoke loud and clear of his opposition to the PACE program in a statement issued to the press. He said his agency would “defend vigorously” its decision not to extend such energy-improvement loans since the program does not ensure borrowers can repay the money and makes the first mortgage lien subordinate to the PACE loan.

“Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections,”

DeMarco said. “Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage.”

But Attorney General Brown says Fannie Mae and Freddie Mac are ignoring California law, and have wrongly characterized PACE assessments as loans. According to Brown’s office, property owners repay the costs of energy improvements through assessments spread out over a decade or more. Under California law, these costs are classified as tax assessments, which entitles them to lien priority over a mortgage.

Brown says the GSEs’ opposition stands to jeopardize more than $150 million in federal stimulus funding headed to California. According to Brown, a PACE program was set to launch in San Diego within the next couple of months but has now been put on the back burner “indefinitely.” He says nearly half of the counties in California have plans to roll out their own PACE programs.

“Fannie Mae and Freddie Mac received enormous federal bailouts,” Brown said, “but now they’re throwing up impermeable barriers to bank lending that creates jobs, stimulates the economy and boosts clean energy.”

The complaint, filed in a federal court in Oakland, reads: “Because Fannie Mae and Freddie Mac control the mortgage resale market, lenders will not issue mortgages that do not meet Fannie Mae’s and Freddie Mac’s requirements. As a result, Fannie Mae’s and Freddie Mac’s determination — which misrepresents California law — essentially forecloses residential Property Assessed Clean Energy programs.”

A number of states across the country have also adopted PACE programs, to promote cleaner energy and stimulate job growth.