A home energy loan program that Washington-area leaders billed as a groundbreaking way to save on utility bills and reduce carbon emissions is largely in doubt.

Government-controlled Fannie Mae and Freddie Mac, which back more than half of mortgages nationwide, said they won't accept loans for homes tied to the Property Assessed Clean Energy program. The increasingly popular arrangement nationwide allows residents to pay gradually for green-friendly home improvements -- financed by governments -- through their property tax bills.

Both the District of Columbia and Montgomery County had planned on rolling out the program in coming months and other jurisdictions were eyeing similar changes, but officials conceded Tuesday they might have to abandon the venture over mortgage concerns.

"The program in all likelihood won't happen if we can't change some minds at the federal level or get Congress to intervene," said Montgomery County Councilman Roger Berliner, D-Bethesda, the lead sponsor of Montgomery's initiative.

Participants would pay an extra line item on property tax bills over more than 10 years, which would allow residents to install solar panels and more efficient heating and cooling systems. The thinking is that energy savings would outweigh the additional tax.

But the mortgage giants say they are concerned taxpayers would be on the hook for defaults tied to the program. And homeowners would be forced to assume payments for the energy upgrades if the previous owner had not paid them off.

"Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage," said Edward Demarco, acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

The agency is expected to clarify its position Wednesday, a day after meeting with congressional supporters of the program.

California is suing the regulatory agency, saying the bailout-funded mortgage giants are blocking a sound way to bolster job creation and boost clean energy. Rep. Mike Thompson, D- Calif., has introduced a bill that would ensure Fannie and Freddie participate in the program.

The Obama administration slated $150 million in stimulus money for PACE, but in light of recent developments, the Energy Department has since told states and local governments not to spend the money.

The Metropolitan Washington Council of Governments is pushing for more than 10,000 residences to be retrofitted annually each of the next three years.

And Montgomery County officials say the program is expected to be popular with homeowners, who are already lining up to claim part of the roughly $10 million set aside.