Will going green save the real estate market and help lenders recover from the sub-prime credit crunch? In the wake of the sub-prime mess, and the decline in real estate sales there is a silver lining…or better yet…a ‘green’ lining. From Green homes to green mortgages, going green will change the world and the way we live in it. Going Green, just like having a .com, is here to stay.
“Saving the planet” and being ‘environmentally aware’ used to be for the extremists, tree huggers, or environmental groups, but not any more. Energy bills are becoming a large part of the expense of a home. Lenders have taken notice. Financing that provides incentives for buyers, builders and lenders to practice green building and developing is the next step in the green building arena.
Mortgages are pooled together and sold to Wallstreet through Mortgage Backed Securities, both residential (MBS) and commercial (CMBS) These securities or bonds are separated or ‘tranched’ in to several different risk types determined by the rating agencies like Duff & Phelps, Fitch, Moody and Standard and Poor’s. This process is a large part of what makes the real estate market so lucrative.
“Pooling green building mortgages into securities and showcasing their value in the financial market may be the next big step for green buildings”
Fannie Mae has already implemented a ‘green mortgage’ program: the Fannie Mae Green Mortgage Initiative. The added value of energy efficiency translates the monthly energy use savings into additional mortgage funds; thus, giving a borrower more buying power. This program also allows the borrower to finance up to 100% of the energy improvements. This is a program for both new construction and existing properties. The savings benefit identified in a home energy rating may be added to the P & I payment and borrowed is qualified; giving them in increase in buying power.
* Borrowers of all income levels can qualify;
* Borrowers get “more” house while reducing monthly expenses;
* Designed to combine with existing Fannie Mae mortgage products;
* Includes new and existing one-to four-family properties;
* Available for purchase or refinance;
* Includes properties that are energy-efficient in their current state as well as properties that need energy improvements added after closing;
* Home energy rating or evaluation through a prescriptive program that evaluates energy-efficiency and estimates the resulting cost savings for the consumer;
* New construction homes must meet the minimum standards for rating methods and prescriptive programs;
* Existing homes adding energy improvements must be cost effective where the energy savings exceeds the cost of improvements;
* The appraised value is obtained by using the sales comparison approach plus the lower of the present value of the expected energy savings, or the actual cost of the energy improvements; and
* When qualifying the borrower, the expected monthly savings are deducted from the PITI thus allowing the borrower to qualify for a bigger mortgage.
For a property to qualify an energy rating will need to be obtained. You can find out more about energy rating companies here.
Going green is proving to be just as good for business as it is for the environment. I think the challenge for consumers will be finding people in real estate professions that can guide them through the confusing array of green products available. I think we will see a continued trend toward professionals catching on to the idea and becoming green real estate agents, green mortgage brokers and green builders, etc.
For more information on green mortgages you can email my financial consultant for this article Dave Christenson Full disclosure: Dave is a residential and commercial mortgage broker. He is also a developer with the first green subdivision in Utah “Coyote Creek Estates” located in Saratoga Springs, UT currently underway.