By filing a suit on Wednesday, July 14, in an Oakland federal court, California Attorney General Jerry Brown clearly defined the battle lines in a fight that could impact the future of the clean energy industry in California.

The Golden State is suing the mortgage agencies Fannie Mae and Freddie Mac, along with their regulator, the Federal Housing Finance Agency (FHFA), for throwing a monkey wrench into Property Assessed Clean Energy (PACE) programs.

Designed to help homeowners finance solar energy systems and other energy-saving appliances through their property tax bills, the programs make it easier for homeowners to invest in things like home solar panels. Local governments front the homeowners the money for the systems and allow them to pay the loan back through special assessments added to their property bills. The program has become so popular that the Obama administration has made available over $150 million in stimulus funds to help increase the number of local governments offering PACE financing options. So far, 22 states have similar systems.

But on July 6, the FHFA crashed the party. Telling the Los Angeles Times that the loans presented “unusual and difficult risk management challenges” for lenders such as Fannie and Freddie, the FHFA stopped the two lenders from giving out such loans and effectively paused the PACE program. The FHFA said the program violates Fannie’s and Freddie’s standard lending procedures. Without the two lenders that account for approximately half of all U.S. mortgages, the program simply won’t be viable.

California is not giving up without a fight. Attorney General Brown said the federal government is strangling California’s grassroots energy program and that they have misinterpreted PACE as a loan when it is actually a property tax assessment — the debt stays with the home rather than the person, even if the property is sold.

The repercussions stemming from Fannie and Freddie ditching the PACE program could be lasting. California has crafted other state energy programs to work with PACE. Moreover, the state could lose as much as $100 million in stimulus funds without PACE, which would force hundreds of clean energy companies to start laying off workers.

Grumbling over the program from the two mortgage agencies first arose on May 5, when Fannie Mae and Freddie Mac sent a letter to mortgage lenders to remind them that “an energy-related lien may not be senior to any mortgage delivered by Freddie Mac.”

Stay tuned — and if you don’t want PACE programs to go the way of the dinosaurs, speak up and plug in with Vote Solar.