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Town of Babylon v. Federal Housing Finance Agency

October 24, 2012

TOWN OF BABYLON, PLAINTIFF-APPELLANT,
v.
FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, IN HIS CAPACITY AS ACTING DIRECTOR OF FEDERAL HOUSING FINANCE AGENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY, A COMPONENT OF THE UNITED STATES DEPARTMENT OF THE TREASURY, JOHN G. WALSH, ACTING COMPTROLLER OF THE CURRENCY, DEFENDANTS-APPELLEES, CHARLES E. HALDEMAN, JR., IN HIS CAPACITY AS CHIEF EXECUTIVE OFFICER OF THE FEDERAL HOME LOAN MORTGAGE CORPORATION, MICHAEL J. WILLIAMS, IN HIS CAPACITY AS CHIEF EXECUTIVE OFFICER OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION, DEFENDANTS. NATURAL RESOURCES DEFENSE COUNCIL, INC., PLAINTIFF-APPELLANT,
v.
FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, ACTING DIRECTOR, FEDERAL HOUSING FINANCE AGENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY, A COMPONENT OF THE UNITED STATES DEPARTMENT OF THE TREASURY, JOHN G. WALSH, ACTING COMPTROLLER OF THE CURRENCY, DEFENDANTS-APPELLEES.



The opinion of the court was delivered by: Winter, Circuit Judge:

11-3408-cv, 11-3285-cv

Town of Babylon v. FHFA, Natural v. FHFA

Argued: September 14, 2012

8 Before: WINTER, CABRANES, and CARNEY, Circuit Judges.

9 This opinion disposes of two separate appeals from two 10 district courts heard in tandem. Plaintiffs-appellants Town of 11 Babylon and the National Resources Defense Council appeal from 12 grants of motions to dismiss in favor of appellees Federal 13 Housing Finance Agency and the Office of the Comptroller of the 14 Currency in the Eastern District of New York (Leonard D. 15 Wexler, Judge) and Southern District of New York (Shira A. 16 Scheindlin, Judge), respectively. Appellants argue that the 17 district courts erred in concluding that 12 U.S.C. § 4617 18 precludes judicial review of a Directive issued by the FHFA to 19 Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and 20 also that they lacked standing to pursue their claims against 21 the Office of the Comptroller of the Currency. We affirm.

37 This opinion disposes of separate appeals from two different 38 district courts. We heard the appeals in tandem because of the 39 similarity of the issues raised.

40 The Town of Babylon and the Natural Resources Defense 41 Council, Inc. ("NRDC") appeal from orders entered by Judge Wexler 42 in the Eastern District of New York and Judge Scheindlin in the 1 Southern District of New York, respectively. The district courts 2 dismissed appellants' complaints against the Federal Housing 3 Financing Agency ("FHFA")*fn1 and the Office of the Comptroller of 4 the Currency ("OCC").*fn2 Appellants claimed that a Directive of 5 the FHFA and a Bulletin of the OCC adversely impacted the 6 operation of first-lien Property Assessed Clean Energy ("PACE") 7 programs. The district courts dismissed the actions on the 8 grounds that: (i) the claims against the FHFA were precluded by 9 12 U.S.C. § 4617(f), and (ii) appellants lacked Article III 10 standing to pursue claims against the OCC. We affirm.

11 BACKGROUND

12 PACE programs are operated by local governments. They 13 encourage property owners to make home improvements that reduce 14 energy consumption, promote clean energy, create local jobs, and 15 reduce greenhouse gas emissions, thereby mitigating the effect of 16 global climate change. The local governments offer financing to 17 commercial and residential property owners to fund the cost of 18 the property improvements. Typically, the owners repay the 19 particular local government, which calls the financing advances 1 "assessments," on a scheduled periodic basis. If a scheduled 2 payment is not made, in many PACE programs, the delinquent amount 3 attaches to the real property as a "tax lien." Such a lien has 4 priority over any other lien attached to the property, including 5 new and pre-existing mortgage liens, and stays with the property 6 in the event of sale. However, some PACE programs do not carry 7 such priority and are not affected by this litigation. The Town 8 of Babylon operates a PACE financing program styled the Long 9 Island Green Homes program ("LIGH"). It includes a lien-priority 10 provision.

11 NRDC alleges that "first lien status is critical to the 12 success of PACE programs" because junior lienholders typically 13 lose the entire value at stake in a foreclosure. In contrast, it 14 alleges, "PACE lien seniority is immaterial to holders of the 15 underlying mortgages," because the assessments are relatively 16 small, the risk of default is lessened by the improvement in the 17 owner's financial status due to energy cost savings, and the 18 value of the collateral is increased.

19 The Federal National Mortgage Association, commonly known as 20 Fannie Mae, and the Federal Home Loan Mortgage Corporation, 21 commonly known as Freddie Mac, are federally chartered 22 corporations of a type commonly referred to as Government- 23 Sponsored Enterprises. The entities together own or guarantee 24 close to half of the home loans in the United States, and the 25 value of the combined debt and mortgage-related assets of the two 1 entities along with the Federal Home Loan Banks ("FHLB") exceeds 2 $5.9 trillion. As noted by Judge Wexler in the Town of Babylon 3 matter, "The position held in the home mortgage business by 4 Fannie Mae and Freddie Mac make them the dominant force in that 5 market. . . . [I]t is not a stretch to assume that lenders in the 6 home financing market are guided in their decisions by Fannie Mae 7 and Freddie Mac requirements." Town of Babylon v. Fed. Hous. 8 Fin. Agency, 790 F. Supp. 2d 47, 49-50 (E.D.N.Y. 2011).

In September 2008, as discussed in more detail infra, FHFA appointed 10 itself conservator over Fannie Mae and Freddie Mac.

11 On July 6, 2010, the FHFA issued a Directive ("FHFA 12 Directive" or "Directive") directing Fannie Mae and Freddie Mac 13 to take "prudential actions," "not limited to" certain enumerated 14 suggestions not pertinent here,*fn3 to protect themselves against 15 safety and soundness concerns -- risks -- raised by PACE programs 1 that impose priority or first-liens on participating properties 2 like LIGH. Fed. Hous. Fin. Agency, Statement on Certain Energy 3 Retrofit Loan Programs 2 (2010). The Directive also directed the 4 FHLBs "to review their ...


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