Fannie Mae and Freddie Mac have shut down most of the nation’s programs using Property Assessed Clean Energy (PACE), an innovative tool (explained here) that helps Americans finance green improvements to their homes. Here’s the latest news:

The Federal Housing Finance Agency will say Wednesday whether it will allow a 30-month pilot project for Property Assessed Clean Energy (PACE), Congressman Steve Israel (D-N.Y.) said after a meeting today with FHFA reps.

Israel said he proposed a demonstration project of 300,000 homes that would test out FHFA’s concern that PACE creates additional risk for mortgage lenders.

“Right now you’ve got the regulatory community advancing a theory about PACE bonds,” he said in an interview. “You have PACE advocates advancing their theory. Let’s test out which theory is valid. At the end of the 30-month period we’ll have hard data on which to base decisions.”

That could provide some clarity over the fate of the popular finance tool that helps homeowners green their properties. PACE programs had been spreading quickly around the nation until Fannie Mae, Freddie Mac, and FHFA, their regulator, came out opposed to them.

Israel and three other Congress members met Tuesday with FHFA leaders and what sounds like a small army of Obama administration officials — including representatives from the White House National Economic Council, FDIC, and Energy, Treasury, and Housing and Urban Development departments — to try to hash out a solution. The administration has endorsed the PACE model with $150 million in stimulus funding and tried unsuccessfully to resolve the impasse with FHFA earlier this month.

FHFA already faces a California lawsuit and a House bill that would prevent it from blocking PACE programs. But Israel, like bill author Mike Thompson, would prefer to resolve the dispute without waiting on courts or Congress.

“We’ll see how serious they are,” Israel said of FHFA. “I think they clearly understood that Congress is not backing down on this and they simply have to work with us.”

He said FHFA responded to his proposal by suggesting a much smaller 10,000-home pilot — a plan that didn’t impress him.

“[That figure] does not suggest a real commitment to the program. There’s no statistician in America who would suggest you could get a valid sample with 10,000 homes,” he said.

FHFA Acting Director Edward DeMarco and General Counsel Alfred Pollard said they would make a counter proposal by Wednesday morning, he said. FHFA’s spokesperson declined to comment.

Nobody has determined which cities and counties could join the pilot project, whatever its size, although a 300,000-property pilot would leave room for new programs. For perspective, the nation’s largest existing program, in Sonoma County, Calif., enrolled about 900 participants in its first year (though it continues to grow).

Israel said the first priority would be to reinstate suspended programs, including San Francisco’s, which was launched just before Fannie and Freddie warned lenders to stay away from PACE.

He was sympathetic to Fannie and Freddie’s concerns — among other things, they want to ensure PACE programs have consistent lending and retrofitting standards. He said programs have addressed these and a demonstration would only make the model safer.

“These can all be worked out if people would go from a reflexive ‘no’ to a thoughtful approach towards ‘yes,’” he said. “The choice is litigation, legislation, or [FHFA] can try and solve the problem. The ball is in their court.”