Last week, President Obama announced a new multimillion-dollar federal initiative to speed the development of smart grid initiatives across the country. This is part of the administration's continuing efforts to steer the nation into a new realm of energy-efficiency applications and so-called green energy developments.
Sadly, the president did not expand his plan to include energy-efficient mortgages (EEMs). This omission is fairly glaring, considering that the administration has the twin goals of improving the U.S. energy sector and rebuilding the mortgage banking and housing markets.
For those who are unfamiliar with the product, an EEM credits a home's energy efficiency in the mortgage. With this product, borrowers are able to add energy-efficiency installations as part of a mortgage while extending the debt-to-income qualifying ratios. Thus, the borrower can qualify for a larger loan amount on a home with superior energy efficiency.
EEMs have been around for decades, but they still remain stuck on the fringe of the industry. The product makes up less than 1% of the home-loan market, and the few lenders that originate them are not going out of their way to call attention to the product.
Part of the problem is in the excess of paperwork that goes with the product. Loans cannot be approved without an extensive energy audit that passes the rating system devised by the U.S. Department of Energy and the Environment Protection Agency. Of course, this also requires an additional financial investment of hiring the energy auditor, which some lenders may consider to be burdensome.
Furthermore, EEMs have not been brought into the 21st century in regard to loan limits. Last spring, I reported that a Department of Housing and Urban Development (HUD) spokesperson acknowledged that the Federal Housing Administration restrictions – which have not been updated since 1992 – were preventing HUD's embrace of the product.
In today's still-unsteady environment, EEMs can be used to help borrowers get a handle on spiking energy prices – particularly in the Northern states where the autumn and winter chill can play havoc with heating bills. EEMs can also move a lot of older homes that are still on the market. Many of these homes were built before today's energy-efficiency standards were in place, so bringing them up to date in this consideration would help boost home values for older properties.
I am not certain if the administration is even aware that EEMs exist – to date, there has been no movement to encourage their origination. This is curious, given the White House's penchant for highlighting green initiatives.
This is not the first time that I've spoken up about the unrecognized potential of EEMs. I suspect it might not be the last time. Still, EEMs could easily be a significant product for mortgage banking in the coming years. I hope that this long-overlooked product will finally get its due, because it can offer a strong win-win situation for the industry and for a nation trying to get a handle on its energy concerns.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
