RESNET Policy on Energy Efficient Mortgages
Adopted by the RESNET Board of Directors, September 11, 2006
Energy efficient mortgages have been around for decades but largely have not
been taken advantage of. In the past few years the secondary mortgage market
has streamlined the underwriting process for the energy mortgage product.
Fannie Mae has made the process seamless for the lender and the rater. Yet
despite these infrastructure improvements and rising energy costs the demand
for the product has not increased.
There are several reasons for this.
The first reason is that on the most part lenders, the housing industry is not
aware of the products and their benefit. The secondary mortgage markets of
Fannie Mae, Freddie Mac, FHA and VA have not aggressively marketed the
products nor sustained an education effort to lenders. Fannie Mae had started
an effort but has dropped it and reassigned staff that were promoting the product.
The second reason is that the value of the energy efficient mortgage was limited
because it was aimed at primarily at boosting an applicant’s income for qualifying
for a mortgage loan. There are many other products that are more effective at
this strategy. Focusing on boosting income for qualification ignores that fact that
energy costs are the highest cost of homeownership outside of the principle and
interest of the mortgage loan.
With the growing political concern over high energy costs and climate change
RESNET has reconsidered its strategy on energy efficient mortgages. Despite
the weak performance to date in penetrating the market, RESNET has not given
up on their promise, after all that is why home energy ratings and RESNET were
created in the first place. Instead RESNET is striving to create a new reality on
what it will really take to mainstream energy efficiency in the mortgage process.
The RESNET Board of Directors has adopted two policy recommendations on
energy efficient mortgages. They are:
RESNET urges Congress to adopt as federal policy that by 2020 new
homes be 50% more efficient than today's home. The policy would also be
that as government chartered corporations Fannie Mae and Freddie Mac
have a responsibility to assist in meeting the goal and must prepare a plan
to Congress on how they will assist in meeting this policy objective and
report annually on progress. – Since the federal lending institutions are
chartered by Congress they have a responsibility to assist the nation in meeting
its goal of dependence on imported oil. This is a logical conclusion of the new
homes tax credit that was established in the Energy Policy Act of 2005.
RESNET urges the federally sponsored secondary mortgage market to
change their calculation of housing costs to include "principal, interest,
taxes and insurance minus energy savings with the energy savings coming
from a certified home energy rating. - This would be an important boost to
mainstreaming energy efficiency because in the mortgage loan the energy
savings would dollar for dollar reduce the housing costs in calculating a person's
loan qualification.
Email from 9/15/2008 Letter from a friend that keeps me updated on what is going on with Green Mortgages .
Right now my opinion on this is that there is a systems level failure to execute across the board on EEM's(Energy Efficiency Mortgage) with the notable exception of the home energy services industry which is fully developed, has the standards in place and is ready to support an active green homes industry. You are not alone in your frustration. California too has a big hole where there used to be ways to get EEM's for consumers of efficient new homes.
You are right to say these types of products have been around (evolving from lip service) since the lat 1970s' but currently the problem is rooted in the meltdown of the primary lending industry. Some of the early adopters like GMAC, Countrywide, IndyMAC, etc. have essentially crashed and burned due to problems with their standards. To expect them now to still offer "creative" products is problematic. Right now the EEM (energy efficiency mortgage / green-mortgage) products are effectively being shut out of the marketplace.
A home buyer today has to have supreme credit ratings, excellent job history, etc. Since Fannie / Freddie are essentially insolvent (on FED life support) they are no longer in a position to support the primary EEM's through packaging and turning them into marketable securities. Banks and investors have been avoiding mortgage based paper like the bubonic plague. Last year Freddie Mac went so far as to officially notify RESNET and the lenders it was no longer going to buy packages of EEM's according to one conference speaker.
All the above sounds pretty disapointing ,,, what the big Guys are doing here in the US. Market !
Lets see, I will come up with a solution ,,, and i will not wait , Just stay in touch ! Georg Thoma 9/16/08
Frequently Asked Questions
About EEM .
The Energy Efficient Mortgage (EEM) recognizes that energy efficient homes cost homeowners less to operate on a monthly basis than standard homes because they use less energy. Home buyers who chose energy efficient homes can afford to spend more on their housing expenses because they will likely spend less on their energy costs. The EEM allows borrowers to qualify for a larger mortgage as a result of the energy savings. The EEM benefits those buying new, energy efficient homes or those purchasing existing homes that need energy improvements.
Q: Why should I buy an energy efficient home?
A: Energy efficient homes cost less, have improved comfort, and create less pollution. An energy efficient home will use less energy for heating, cooling, and water heating as compared to a standard home.
Energy efficient homes use less energy, but feel warmer in the winter and cooler in the summer. The air quality may even be better in an energy efficient home, as improved duct systems will improve balanced airflow to all of the rooms.
Energy efficient homes also create less pollution. The average home produces twice as much greenhouse gas pollution as the average car. So reducing the amount of energy used in a home can drastically decrease the amount of pollution created to generate the electricity for homes.
Q: What is an EEM?
A: An EEM (Energy Efficient Mortgage) can help you purchase an energy efficient home. The EEM recognizes that energy efficient homes cost homeowners less to operate on a monthly basis than standard homes because they use less energy. Home buyers who choose energy efficient homes can afford to spend more on their mortgage loan because they will likely spend less on their energy costs.
Q: How does the EEM benefit the borrower?
A: The EEM benefits the borrower in several ways. First, the estimated energy savings are added to the borrower’s income to allow the home buyer to qualify for a larger total mortgage amount. Second, by increasing borrowing power, the EEM allows borrowers to include the costs of energy improvements into the total mortgage amount. 100% of the energy improvements, typically up to 15% of the value of the home, can be financed and paid for over the life of the mortgage, reserving the borrower’s cash for more immediate, move-in costs. Third, the value of the home is adjusted by the value of the energy efficient improvements.
Q: What types of homes can qualify for the EEM?
A: The EEM can be used for one-unit, single-family, owner occupied principal residences, PUDs, and condominiums. The homes may be new construction or existing housing.
Q: Can a home that is already energy efficient qualify for the EEM?
A: Yes, the EEM can be used for homes that are energy efficient at the time of purchase.
Q: What types of transactions can the EEM be used for?
A: The EEM can be used for both purchase and refinance transactions. The standard EEM can be used for limited cash-out refinances.
Q: How does a home qualify for the EEM?
A: Existing homes must have a RESNET accredited rating report to evaluate the home’s energy efficiency in its current state or to identify opportunities for cost-efficient energy efficient upgrades.
If the home was newly constructed, the home can have a rating report. After completion, the home is evaluated with a home energy rating.
Q: What is a home energy rating?
A: The home energy rating is a standard measurement of the home’s energy efficiency. An energy rating allows a home buyer to easily compare the energy costs for the homes being considered.
Home energy ratings involve an on-site inspection by a residential energy efficiency professional – a home energy rater. Home energy raters are trained and certified by a RESNET accredited home energy rating system.
The home energy rater inspects the home and measures its energy characteristics, such as insulation levels, window efficiency, wall-to-window ratios, the heating and cooling system efficiency, and the solar orientation of the home. Performance testing, such as a blower door test measuring door and duct leakage may be used. The home receives a point score between 1 and 100, depending on its relative efficiency. An estimate of the home’s energy costs is also provided. A homeowner who wants to upgrade the energy efficiency can use the energy rating to evaluate and pinpoint specific, cost-effective improvements.
Q: How does an energy efficient home qualify for an EEM?
A: The rating report compares the energy efficient home against a similar home meeting the minimum energy requirements of the International Energy Conservation Code (IECC) (often called the “reference home). The rating confirms that the home when built achieves the intended design and performance specifications.
For homes that are already energy efficient, the rating report will provide the following data required by the mortgage lender for an EEM:
Q: Do older energy inefficient homes qualify for an EEM?
A. Yes, the EEM can finance the energy upgrades of an existing home.
Q: How does a home that may need energy improvements qualify for an EEM?
A: For homes that are not energy efficient, the rating report recommends cost-effective measures to improve the home’s energy performance and estimated the savings that will result from making the improvements. The home buyer then can include the cost of the improvements in their mortgage loan.
Q: Why will the mortgage lender add the energy savings value?
A: The energy efficiency improvements to a home adds value to the home. The rating report provides the additional value the energy improvements will add to a home.
Q: How does a lender calculate the added value of the energy savings?
A: The energy rating report will provide the lender with the present value of the energy savings.
Q: Why is the added present value necessary?
A: The added present value accomplishes two things. First, in an energy efficient home it may not be possible for an appraiser to isolate the installed costs and market value of the energy measures. Second, for homes that need energy improvements, the present value calculation is used to determine whether the energy improvements are cost effective.
Q: What is meant by “cost effective”?
A: The benefit the borrower will receive in energy savings must exceed the cost to install the improvements. If the benefits do not exceed the installed costs, then the improvements are not cost effective and the home will not qualify for an EEM.
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HomeLoan Consultant, specializing in Hawaii Mortgage Lending with an extensive network of affiliates in the State of Hawaii and USA. I am proficient in English and German - Deutsch - Swiss
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In the Month of November - December 2007, the cost of Regular Gasoline on Maui has jumped from $3.49 to as high as $3.84 per Gal. and the Diesel at all high of $4.29. The only affordable energy is Bio-Diesel that is priced at $3.49 a gal. In order to save we all need to pay the price etventually.
How can we save now even when Utility Bills are on the Rise ?
A special designed analysation of your residence energy expense , shows you where you are wasting energy and money. We at International Mortgage, encourage you to take advantage of Renewable Energy so you can save cost and prot ect the environment. With the Consultation of your Tax Accountant you might can benefit for Rebates based on the current Goverment, State and County Credits. We encourage the use of: Wind, Photovoltatic and thermal Solar sysems and eligble ef ficiency technologies or even special insulation. If you are Purchasing a home or remodel the current Family residence, we reward you for the effort. A simple Green "thank you"!
Use yor energy wisely .... contact Georg Thoma
Gold Leed Home on Maui.
Georg helped us big times ! He has completed our quick p urchase within 2 Weeks, and the mortgage he had advised us saved us lots o f closing Cost . He came to our home and collected all the nessary paperwork we need ed to qualify for the Mortgage . Haiku Homeowner , Maui Hawaii
We are living on Lanai and our Realtor told us to call Georg Thoma . He personally came to the Island of Lanai and took a Loan application . We were stunned how well he had explained us how Mortgages Work so we could make the best Loan decision . Lanai Homeowner , Hawaii
Mr. Thoma was invited to speak to our freshmen at Baldwin High-School . We did not expect that he teached our students so well that we had to invite him next day for a second session . He showed the young student how money is working for their future . Baldwin High-School , Kahului ,Maui Hawaii.
Georg is one of the best Loan officer I know of, He returns calls and follows up with my Clients right away . One day I was in the need to hold a Open House near Wailea . Georg was cooking some food together ,,,,, that was Grand Wailea Style . He had helped me to sell this House . Gary Bland , Realtor (RS) Century 21 All island Hawaii
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