An Emerging Market Opportunity

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An Emerging Market Opportunity
Power Your Business With Energy Efficiency
A slide presentation adapted from Mortgage
Bankers Association of America given June 13,
2000 by Mr. Steve Baden and Ms. Barbara Collins
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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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Home Buyer Behavior Research
National Association of Home Builders (NAHB) and
Fulton Research Top ten trends in Consumers
Demand for New Homes 9 Increased
Energy Efficiency National Family Opinion
Research 1997 Survey of consumers in 39 regions
who bought a new home in the past 3 years 89
of home buyers want Energy Efficient Upgrade
Options 83 are most likely to use a builder
who offers these upgrades
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Home Buyer Behavior Research
Realtors National Market Institute Survey

• Potential home buyers ask more questions about
  the cost of maintaining a home than anything
  else.
• 94 of new home buyers believed energy features
  were important in their home buying decision

Appraisal Journal of the Appraisal
Institute Study printed in October 1998
Market value of home increases by an average of
20 for every 1 decrease in annual utility cost
through energy efficiency
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Home Buyer Behavior Research
1998 Pulte Homes Buyers Study If a builder could
save you 300 a year in heating and cooling by
adding an energy package would you spend the
money?
Yes, would spend 1,200-1,500
69.9 Yes, would spend 1,500-2,000
17.7
Rank in importance to decision to purchase a
Pulte Home 1 Interior Design
91.0 2 Energy Efficiency
88.7 3 Builder Reputation
87.6 4 Kitchen Lay-out
87.3 5 Bedroom Lay-out
85.2
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Housing Industry Leaders on the Emerging Market
for Energy Efficiency
GMAC Mortgage closed more then 777 million in
energy efficiency loans in 1998" Stephanie
Harmon, formerly with GMAC Mortgage National
Business Development Organization
Pulte Homes recognizes a market trend toward
greater energy efficiency in the Southwest...that
is why we are building energy efficient new homes
to meet that demand. Jeff Johnson, Director of
Sales Pulte Homes Corporation, Phoenix
Division Pulte Homes, called the nations 1
builder by Builder Magazine, builds over 20,000
homes per year.
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Why Energy Efficiency?

• Lower utility bills increase value
• Living Comfort Quality Sells at a Premium
• People pay Green for Green

Existing Homes
New Construction Giving Solutions
4 5 Star Rating on
Homes Providing New Options
Market Differentiation Answering Objections
Good Housekeeping Seal Increasing
Customer Satisfaction
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Introduction to Home Energy Ratings

• Easily understood efficiency assessment
• MPG sticker for a house
• On site inspection by certified professional
• Third party assessment
• Quality Assurance of subcontractors for builders
• MPG Sticker For a House
• 5 Star Rating - Very Good to Excellent
  Efficiency
• 4 Star Rating - Good Efficiency
• 3-2 Star Rating - Needs Improvement
• 1 Star Rating - Very Inefficient

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• National Accrediting Organization for Energy
  Rating Systems
• Network of Lenders, Builders, Rating Systems,
  Utilities and Govt Agencies
• Mortgage Industry Steering Committee Co-Chairs
• Leland C. Brendsel, CEO, Freddie Mac
• Donald E. Lange, 1999 President MBA
• Members are CEOs of
• Fannie Mae
• Chase Manhattan Mortgage
• Countrywide Home Loans
• Norwest Mortgage
• GMAC Mortgage

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Energy Rated Homes of Utah

• Member of the National Association of Home
  Builders, Utah Valley Home Builders Association,
  Southern Utah HBA, and Salt Lake Valley HBA.
• 2003 Energy Star for Homes Outstanding
  Achievement Award
• Member Residential Energy Services Network
  (RESNET)
• More than 1300 homes tested in Utah.
• Regional HERS provider since 1990.

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Mortgage Banking Magazine October 1999

• The most important impact the Internet will have
  on the mortgage business over the next five
  years?
• Increase in consumer awareness of competitive
  products and prices combined with easy access to
  information on a wide variety of qualification
  and financing options

One Size Does Not Fit All
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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 buyer qualification amount
• Capitalizes energy savings in the appraisal

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Mortgage Industry Leaders on Energy Mortgages
Energy Mortgages are the best kept secret in the
mortgage industry. Energy Mortgages will help
qualify more families for homeownership and
improve the nations housing stock Donald Lange,
1999 President Mortgage Bankers Assn.of
America Freddie Mac sees energy mortgages as an
important factor for consumers because it puts
more people in homes John Hemschoot, Director of
Mortgage Standards, Freddie Mac Energy
efficient mortgages are good for consumers, good
for the environment and good for affordable
housing. Secondary Marketing Executive Magazine
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Impact of Energy Mortgages on Home Ownership
1998 EPA Study on Impact of Energy Efficient
Mortgage Nationally energy mortgages would
enable a minimum of 6.8 more first-time home
buyers to afford a mortgage loan.
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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 and
Fannie Mae in the lenders corner. ALSO -
Directories of rating organizations, member news,
accreditation guidelines and more.
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Energy Rated Homes of Utah

• Home Energy Rating System in Utah
• Test and certify homes
• Work with builders, home owners
• Train raters in Utah and surrounding area
• Accredited by RESNET
• HERS provider
• Rater trainer

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HUD
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 / 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
  / to cost of installation
• Documentation Home energy rating, contractor
  bids, HUD Attachment B (EEM Worksheet), HUD
  92900-PUR (EEM notes), HUD 92300, and HUD 54111
  (EEM note)

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Sample of FHA Energy Mortgage

• Appraised Value
  60,000
• Interest Rate
  8.0
• Closing Cost
  1,200
• Energy Improvements 3,000
• Average Life of Measures 10 years
• Annual Energy Savings 480
• Present Value Factor
  6.710
• 6.710 Present Value Factor x 480 Annual Savings
  3,220 Premium / to improvement cost

Standard FHA Underwriting New Loan
Amount 60,000 Appraised Value
58,640 standard loan calculation X 97.75 Max.
LTV 3,000 Energy
Mortgage 58,650 Max Loan
61,640 New Loan Amount
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Department of Veterans Affairs
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 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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Examples of VA Energy Mortgage
Appraised Value 120,000 Interest Rate
8.5 Term 30 year Example
1 Cost of Improvements 2,400
Approved - 3,000
2,400 Example 2 Cost of
Improvements 3,400
Monthly Energy Savings 32.50
Monthly Payment Increase
26.14 Approved -
32.50 26.14
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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, Form 70A, or
  70B in Pilot Areas, Form 442

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Fannie Mae
Fannie Mae Energy Mortgage Program

• Financing Limits 15 of property 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 added to appraised value
• Appraised Value Energy improvement amount added
  to appraised value
• Eligible Improvements Any which increase
  efficiency and have present value
• Documentation Home energy rating, contractor
  bids, Form 1004, Certificate of Completion

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Energy Efficient Mortgages in Utah
The national average savings on energy bills for
families living in Energy Star labeled homes
averages 35 a month, or 420 per year. This can
equate to 7,200.00 for a standard 30 year
mortgage. Energy Star labeled homes are more
durable. This translates into reduced maintenance
costs since tight construction and energy
efficient windows reduce moisture and sun damage.
Energy Star labeled homes have a higher resale
value and market appeal as well!
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Programs in Utah
Partnerships and Opportunities
In Utah the Energy Star Homes Program is an
integral component of its Resource Efficient
Homebuilding Partnership program now titled
BUILT-WISE. This program incorporates the
experience of prominent energy efficient
organizations in the public and private sectors
of the Utah housing industry.
http//www.utahenergystar.org/builtwise.html
Green Energy/Resource Management is a Utah
Sustainability Program that is available to
encourage a "whole-systems" approach to
residential construction through design and
building techniques to minimize environmental
impact and reduce the energy consumption of
building construction while contributing to the
health of its occupants. http//www.utahenergy.or
g/sustainability.html
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Utah Energy Star
Additional Information

• Utah Energy Star
• www.utahenergystar.org
• www.energystar.gov
• Home Energy Ratings
• www.utahenergy.org
• www.natresnet.org
• Utah Green Building
• www.utahenergy.org/sustainability