Introduction to Home Energy Ratings and Energy Mortgages

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Introduction to Home Energy Ratings and Energy
Mortgages

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OpportunityThe Time is Now

• Energy will be in National Focus This Winter
• Projected Natural Gas Supply/Price Issues
• DOE Warning to Governors
• Alan Greenspan Warning
• National Energy Policy Legislation
• Proposed Federal Tax Credits for Residential
  Energy Efficiency
• National Security Concerns

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OpportunityThe Time is Now

• The Public Will be Concerned Over High Energy
  Bills This Winter. Opportune Time to Introduce
  the Benefits of
• High Performance Energy Efficient Homes
• Home Energy Ratings
• Energy Efficient Mortgages

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Why Energy Efficiency?

• Lowers Home Ownership Costs
• Increases Comfort Quality of the Home
• Puts More Families Into Homes
• Fosters Affordable Housing

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High Energy Bills Increased Delinquencies

• There is a likely correlation between higher
  energy bills and a recently reported increase in
  delinquencies.
• Real Estate Finance Today
• April 2, 2001

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RESNETs Mission

• Improve the energy efficiency of the nations
  housing stock and qualify more families for home
  ownership by expanding the national availability
  of mortgage finance options and home energy
  ratings.

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RESNETs Key Services

• Maintain National Home Energy Rating Standards
• Accredit Rating Providers, Rating Software
  Programs, Rater Training Providers
• Work with the Mortgage Industry in Developing and
  Promoting New Energy Mortgage Products

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Home Energy Ratings

• Are Voluntary
• Accredited Rating Programs in all 50 States
• Over 3,000 Raters Certified Across Nation

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National Home Energy Rating Standards

• Rating Program Administration
• Technical Guidelines
• Rater Training and Certification

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What Are Ratings Used For?

• Energy Efficient Mortgages
• ENERGY STAR Home labeling
• Performance option for energy code compliance in
  16 states
• State utility public benefit funded residential
  energy efficiency programs in 9 states

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Energy Mortgages

• Increases the Home Buying Power of Consumers
  Using Energy Savings
• Energy Improvement Mortgage
• Finances the Energy Upgrade of an Existing Home
  in the Mortgage Loan Using the Monthly Energy
  Savings
• Energy Efficient Mortgage
• Uses Energy Savings of Efficient Home to Increase
  the Consumers Buying Power
• Capitalizes Energy Savings in the Appraisal

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An Emerging Market Opportunity

• Across the nation more mortgage lenders are
  offering energy efficient mortgages which will
  allow home buyers of energy efficient homes to
  borrow more money because the homes will have
  lower monthly utility bills.
• Better Homes Gardens Magazine
• Residential energy efficiency is increasingly
  being seen as a wise investment by a home owner.
  This market value is being increasingly
  recognized by the mortgage industry.
• Worth Magazine

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Energy Mortgages Offered BySecondary Mortgage
Market
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• 24 hour/7 day Lender Help Desk
• www.natresnet.org
• Complete Energy Mortgage details - guidelines and
  mortgagee letters from VA, FHA, Freddie Mac
  Fannie Mae in the Lenders Corner.
• ALSO - Directories of Rating Organizations,
  Member News,
• Accreditation Guidelines and more

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• FHA Energy Mortgage Program
• Financing Limit 4,000 or 5 of the appraised
  value, up to 8,000
• Down Payment No additional down, if energy
  savings have a present value gt/ than the cost of
  installation
• Loan Limits Maximum limits can be exceeded by
  the cost of energy improvements
• LTV Final LTV may exceed 100 of appraised value
• Eligible Improvements Any identified by home
  energy rating which have combined present value
  gt/ to cost of installation
• Documentation Home energy rating, contractor
  bids, HUD Attachment B (EEM Worksheet), HUD
  92900-PUR (EEM notes), HUD 92300, HUD 54111
  (EEM note)

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• VA Energy Mortgage
• Program Features
• Financing Limits Up to 3,000 - based solely on
  documented costs. Up to 6,000 with documented
  positive cash flow
• Down Payment No additional down payment
• Loan Limits Cannot exceed VA loan limit
• LTV Can exceed 100 of appraised value
• Eligible Improvements Any which increase
  efficiency and create positive cash flow
• Documentation Home energy rating, contractor
  bids, VA 26-1842 (EEM Note), VA 26-6393 (EEM
  notes), VA 26-1820, Notification of Completion

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• Freddie Mac Energy Mortgage Program
• Financing Limits No limit if supported by value
• Loan Limits Cannot exceed maximum loan limits
• Down Payment Use LTV of base loan calculated on
  lower of improvement costs plus purchase price,
  or appraised value
• LTV Entire loan amount cannot exceed 95
• Appraised Value Energy improvement amount added
  to appraised value (Energy Efficiency Value
  Increment)
• Eligible Improvements Any which increase
  efficiency and have present value
• Documentation Home Energy Rating

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Fannie Maes New Product

• Streamlined product line
• Standard, no-income limit product
• Community lending products for lower income
  borrowers
• DU solution for the products
• Low down payment option
• Increased allowable LTV
• Allowances for rebates and tax credits for
  closing costs
• Simplified Energy Report for lender

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Fannie Mae Energy Efficient Mortgage

• Eligible properties
• One unit, owner-occupied
• No manufactured homes , unless built to state or
  local code
• No cooperatives
• Property must have energy rating
• Can be energy efficient as-is, new construction,
  or existing needing retrofits
• Appliance manufacturer rebates and tax credits
  are allowable
• Rebates can be used for down payment
• Tax credits added to income

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Fannie Mae EEM Benefits

• Qualify for larger mortgage
• Energy savings added to income for qualification
  purposes
• Finance energy retrofits
• Energy improvements to existing homes can be 15
  of homes value
• Finance up to 100 of improvements
• Improvements paid over life of mortgage
• Increases Appraised Value of Home
• New construction appraised value plus PV of
  improvements
• Retrofits installed costs sales price and
  appraised value

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How Does a Home Qualify

• Every home must be rated by a certified energy
  rater
• Home can be energy efficient as-is or need
  efficiency upgrades which can be financed
• Rater provides report that includes all the
  information the lender needs
• Estimated monthly Energy Savings
• The Energy Value of the energy efficiency
  measures

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Fannie Mae Energy Report
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Section V -- Add Energy Savings to Other Income
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Section VII - For retrofit homes -- Add the
installed cost of the energy measures to Line B
Alterations, improvements, or repairs For
appliance manufacturer rebates, the rebate amount
is added to Line L Total Other Credits
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Additional Data Section -- For new homes -- add
Energy Savings Value to appraised value For
existing homes -- Add installed cost of energy
efficiency measures to appraised value
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Steps to Originating an EEM

• Home buyer selects home
• Home has energy rating prepared
• Home buyer applies for mortgage at approved EEM
  lender
• Lender submits loan according to product
  requirements
• Energy report kept in loan file
• If home needs retrofits, measures installed after
  closing, contractor paid with funds from escrow

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MyCommunityMortgage EEM

• Even lower borrower contribution
• Lesser of 500 or 1
• Borrowers with income of 100 of area median
  income or less
• Exceptions for Fannie Neighbors? areas
• Higher incomes ok for high cost areas
• Same value from energy efficiency measures
• 100 LTV

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Proposed Federal Residential Tax Incentives for
Energy Efficient Homes

• House and Senate passed tax credits for energy
  efficient homes as part of national energy
  legilation.
• Both versions requires independent third party
  verification of improvements. Refers to RESNET
  Mortgage Industry National Accreditation
  Procedures for Home Energy Rating Systems
• www.natresnet.org/taxcredit/incentives/

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RESNET Initiatives

• Put organization on financial and organizational
  basis
• Complete process of amending HERS standards
• Assist in passage of effective federal tax
  incentives
• Provide leadership in ensuring robust performance
  method of the IECC
• Implement new Fannie Mae Energy Efficient
  Mortgage Product
• Serve as facilitator between EPA, DOE, and HUD
  and the rating industry
• Enhance partnerships with EEBA and Affordable
  Comfort