Green Mortgage Northwest

Green mortgages are coming – Energy Efficient Mortgages (EEMs) might finally have their day!

Beyond standard incentives for energy measures like better insulation, efficient furnaces and the like, the Department of Housing and Urban Development (HUD) is beginning a huge push for efficiency in homes.

A new generation of energy-efficient mortgages is being rolled out, starting with FHA loans that offer 5 percent larger mortgage amounts to people who plan to undertake energy-efficiency improvements.

For example, if you qualify for a $300,000 FHA mortgage to purchase a standard house, under recent guidance to lenders FHA might now be able to offer you $15,000 more up front (for a $315,000 total loan amount) if the extra money is used to substantially lower the property’s annual energy
consumption.

HUD Secretary Shaun Donovan wants the FHA to offer additional incentives. One of the possibilities: Give applicants credit on their qualifying incomes for a home loan in exchange for documentable savings in annual energy expenditures. This is HUGE!

A new bill also contains an entire subsection devoted to creating incentives for consumers and federal agencies to build and finance more energy-efficient dwellings. Among the key housing-related provisions in the bill:

• The FHA must insure at least 50,000 new energy-efficient mortgages in the next three years, where energy-efficient = 20% drop in energy consumption.
• Fannie Mae and Freddie Mac must develop mortgage products and more flexible underwriting guidelines to reward energy-conscious borrowers and builders. This is big because Fannie and Freddie drive the secondary market and without them, a huge number of prospective mortgages will not be made.
• Additional concessions on loan applicants’ incomes would be extended for properties located in areas close to employment centers or mass transit lines. No concessions would be made on homes in distant suburbs requiring long commutes and large carbon footprints. Buy close-in and ride that bike!
• Real estate appraisers would be required to take energy improvements and the money they save into account as they value houses. Upgrades that will save you money on monthly bills need to be factored into the property’s value. States would require licensed appraisers to undergo additional professional training to equip them for their new energy-efficiency valuation responsibilities.
• Federal financial regulators will support the establishment of privately run “green banking centers” inside banks and credit unions across the country. The centers would help consumers understand how best to obtain financing for energy-conserving home improvements, second and primary mortgages and energy audits and ratings.
• State governments would be required to ensure that homeowners whose energy technologies allowed them to get “off the grid” are not denied property hazard coverage by insurance companies.

None of this is official law yet, but just the fact that such a bill is on the docket is AMAZING. People like to save money, and living in a healthy, comfortable, well-lit home close to where you work and play is something that people will definitely pay for. Earth Advantage’s new study certainly supports it, at least in the Portland and Seattle markets.

Come on Congress – make it happen!

I am always on top of coming trends in green lending, so feel free to contact me with any questions you might have.