Bill Would Sweeten Loans for Energy-Efficient Homes
Home buyers purchasing energy-efficient properties could qualify for larger mortgages than their incomes would normally allow under a Senate bill reintroduced Thursday with broad real estate industry support.
The measure would allow lenders to include projected energy savings from efficiency upgrades when measuring the borrower’s income against expenses and the value of the home against the debt. In addition to giving borrowers larger loans in new purchases and refinancings, it could also lower their interest rates.
Senator Johnny Isakson, a Republican from Georgia who worked in the real estate industry for 33 years and introduced the bill with Senator Michael Bennet, a Democrat from Colorado, said that consumers should get credit for energy-saving construction materials, which are often “out of sight and out of mind and are not valued.” Decreasing the amount of energy a home uses, he said in an interview, increases “the amount of dollars in the pockets of the homeowners.”
The government already promotes so-called energy-efficient mortgages under a Department of Housing and Urban Development program. But the proposed legislation would require lenders to take the projected energy savings into account when presented with a qualified energy report. The senators originally introduced the bill in 2011, and although it attracted support from groups across a broad political spectrum — including the United States Chamber of Commerce and the Center for American Progress — it failed to gain approval. The sponsors have broadened its appeal within the real estate industry, chiefly by eliminating provisions that could have penalized older, less efficient homes or those lacking a report based on estimated energy consumption.
How the bill will fare this time around is unclear. Its proponents in the Senate say they are hopeful it could pass, possibly as part of a comprehensive energy bill introduced by Senator Jeanne Shaheen, a Democrat from New Hampshire, and Senator Rob Portman, a Republican from Ohio. The proponents say the changes could curtail energy use, reduce greenhouse gas emissions and increase the market for conservation upgrades.
The legislation would apply to loans guaranteed by the federal agencies that collectively back roughly 90 percent of new mortgages.
In the absence of a home energy report, which would come from an approved third-party inspector, the home’s energy use would not become a factor. But lenders would provide applicants with information about the benefits of investing in energy-saving upgrades and counsel them on how they could go about doing so.
“Really we’re just talking about disclosure here,” Sean Babington, legislative counsel on energy and natural resources for Senator Bennet, said in an interview. “For years you’ve had to disclose if there are termites in your house or if you have radon gas in your basement. You bring an inspector out to make sure the foundation’s not cracked. Here we have something that probably over the life of the home costs the homeowner orders of magnitude more than all those problems, and we totally ignore it.”
According to Senator Bennet’s office, a household’s average energy costs can run to more than $70,000 over the life of a 30-year loan, more than the real estate taxes and insurance payments that are already taken into account during the underwriting process. Investments in insulated hollow-core doors, double-pane windows and insulated floor-joist systems above crawl spaces can reduce the average home’s bill by at least 30 percent, a value that does not always translate into a higher purchase price.
Jonathan J. Miller, the president of Miller Samuel, an appraisal firm, said the consensus in the real estate market was that “people want green, but to date they haven’t been willing to pay for it to the extent of what it costs.”
If passed, proponents say, the proposal could help close that gap, in addition to promoting energy conservation and construction jobs, generating $1.1 billion a year in savings for consumers by 2021.
Loan applicants could expect to gain about 5 percent more borrowing power on average, said Cliff Majersik, executive director of the Institute for Market Transformation, a nonprofit group that promotes energy efficiency in buildings and helped shape the proposal.
“Many people buy what they can qualify for and no more and no less,” he said. “There are $2 trillion in mortgage loans that happen every year, and the fact that you have this big blind spot is an enormous impediment to energy efficiency.”