The United States District Court for the Northern District of California has taken up lawsuits filed by the State of California, Sonoma and Placer Counties, the Sierra Club, and the City of Palm Desert that seek to overturn the Federal Housing Finance Agency’s July 6, 2010 directives that were designed to stop PACE residential programs nationwide.

On December 20th, Judge Claudia Wilken responded to Sonoma County’s motion for a preliminary injunction that asked the court to prohibit the FHFA, Fannie Mae and Freddie Mac from applying any of the restrictions laid out in the July 6th FHFA Statement.  Judge Wilken did not grant the preliminary injunction, but did suggest that Sonoma County return to the Court with a request that it order the FHFA to initiate the notice and comment procedures required under the Federal Administrative Procedure Act.  The Defendants (the FHFA, Fannie Mae, and Freddie Mac) were ordered to respond by January 6, 2011 and Sonoma County was ordered to respond by January 13, 2011.

If the Court orders the FHFA to commence notice and comment procedures (without withdrawing their July 6,2010 statement), they will be required to follow specific procedures, as outlined on the FHFA Website:

1. Advance Notice of Propose Rulemaking.  In this optional step, agencies publish initial analysis of the subject and ask for public comment.
2. Proposed Rule. Next, the proposed regulatory language is published in the Federal Register, including the justification and analysis behind the rule, as well as the agency’s response to any advance public comment.
3. Public comment.  After publication in the Federal Register, a public comment period begins.  Depending on the complexity of the rule, comment periods could stretch 30 to 60 or even as much as 180 days.
4. Final Rule  After the comment period, the agency publishes its response to issues raised by public comments and an updated analysis and justification for the rule, including an analysis of any new information from public comments.

This process will allow PACE supporters to address specific claims made by the FHFA, Fannie Mae and Freddie Mac, including assertions that PACE assessments are not valid public benefits and claims that they threaten the safety and soundness of the mortgage industry.   It is likely that all comments will made available to the public.