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We are in receipt of letter written by James B. Lockhart III, Director of the Federal Housing Finance Agency that oversees the mortgage giants Fannie Mae and Freddie Mac. ‘The ELTAPs are coming, the ELTAPs are coming!!!” he warns the associations of State Bank Supervisors, Credit Union Supervisors, Residential Mortgage Regulators, Governors and Legislatures.

What’s an ELTAP? It is an Energy Loan Tax Assessment Programs, alternately referred to as a Property Assessed Clean Energy (PACE) program. Notice how Lockhart slips in that three-letter expletive – TAX? He warns that ELTPAPs would have “the effect to impair value of the first mortgages to creditors... (while creating) an additional potential for the loss of a home through a tax sale if the consumer cannot meet the extra debt burden.” Lockhart claims that “the ELTAPs that FHF A has reviewed appear to increase homeowner debt burdens.” He is neither forthcoming about the nature of this review or which programs were reviewed.

There are very few ‘ELTAP’/PACE programs up and running. If Babylon had ever been queried by the director of the FHFA, he would have learned that the average residential energy retrofit cost less than $7,000, reduces air infiltration by 29% and the monthly cost, in most cases, is covered by the savings realized on utility bills. Rather than “impairing the value” of houses, Babylon’s Green Homes program enhances their value and reduces operating costs for homeowners reducing the burden of mortgage payments.

So who is James B. Lockhart III? He is an old Andover prep-school classmate of George W. Bush. His first White House posting was made by Bush Sr. to the executive directorship of the Pension Benefit Guaranty Corporation, the government agency that insures workers retirement funds. In that capacity, he stood up to the likes of Carl Icahn when the billionaire tried to shaft TWA pension funds through a bankruptcy. Fifteen years later he took Fannie Mae kleptocrat Franklin Raines to task over his $18 million golden parachute.

Give Lockhart a couple of checks on the credit side of the ledger before considering the debits. From 2002 to 2006, he served as deputy commissioner at the Social Security Administration where he was taken to task by New York Senator Chuck Schumer, among others, for participating in the Republican road show pushing for the privatization of Social Security. With privatization DOA with the American people, Lockhart moved on to the helm of the heretofore obscure FHFA which was navigated into a position of oversight of the floundering Fannie and Freddie. Not wanting to “rattle the markets”, as he later said, Lockhart declared on CNBC in July, 2008 that F&F were well-managed and “worsts were not coming to worst.” A Bush administration analyst ruminated: “On Mr. Lockhart’s watch, both Freddie and Fannie had plunged into the riskiest part of the market, gobbling up more than $400 billion in subprime and other alternative mortgages,” and was allowing the company to cover up its insolvency with dubious accounting maneuvers.

Given how twice burned in a big way he was, it is understandable how Mr. Lockhart might be twice shy over such small potatoes as ‘ELTAPs’. It's as if he's so shell-shocked, he's jumping at the slightest pin drop. But if he had done the math for his ‘review”, say, considered the cost of retrofitting 5% of houses whose mortgages are guaranteed by Mae and Mac, it would amount to an infinitesimal 0.2% of the total guaranteed by F & F. Moreover, he might revisit the number of Energy Efficient Mortgages (EEMs) that were insured by the FHA in 2007 – 1,006. Note that EEM programs clearly underscore the principle of PACE programs. But if, as Lockhart wrote, “FHFA believes residential energy efficiency will help improve our use of resources and, in the long term, keep down the cost of home ownership,” how does he propose we get anywhere with those kinds of results?

What comes through most loud and clear from his clarion caveat is that James B. Lockhart III, the long-serving DC bureaucrat, is a lot more concerned with protecting his turf than fairly evaluating a large-scale upgrade in the operating efficiency of America’s housing stock. And he is signaling his determination to assert his bureaucratic prerogative when he proposes to his correspondents that they red-line municipalities administering EE programs with “more restrictive borrower underwriting standards and reductions in both the availability and size of mortgage loans in areas with such (ELTAP) programs.” Given the over-the-top representations in his letter and the sword of Damocles he would hold over these budding improvement programs, one hopes that his latest missive is placed in the same performance file as his efforts on Social Security and Fannie & Freddie.

Update on Thursday, October 22, 2009 at 3:39PM by Dorian Dale

On August 25, 2009 President Obama designated Edward J. DeMarco the Acting Director of the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks effective September 1, 2009.   James Lockhart said he had no job lined up but hoped to return to work in the financial-services industry in New York.