Tuesday, September 25, 2007

Green Mortgages 2.0: Less Carbon & More Money

Is your mortgage rewarding you for being an environmentally conscious homeowner?

Not many can say ‘yes’, so read on. I was at West Coast Green over the weekend and learned that green home mortgages have undergone a radical revamp, and now help you to fight carbon emissions, boost your wallet and enable you to direct your investment to a complete supply chain of green investors. The Prototype: Energy Efficient Mortgages Energy Efficient Mortgages (EEMs) came about in the 1970’s when former President Jimmy Carter challenged government agencies to create home loans that counted energy and water savings as additional income for use in paying debt service. In the past ten years, EEMs from Fannie Mae, Freddie Mac, the Veterans Administration and the Federal Housing Administration have all offered homeowners the opportunity to stretch their debt-to-income ratios by slight amounts, so long as the loan was used to purchase a new energy efficient home or helped to install energy-saving improvements. Unfortunately, the structure of EEM programs ignored the basic realities of homebuying, so they’ve never been a hit. For starters, they do not pay sufficient loan proceeds – for example, the maximum loan amount you can receive under the Fannie Mae EEM is $417,000, rendering the product irrelevant for most of us in high cost markets such as California. Additionally, features such as loan docs and closing costs were not streamlined with today’s market standards, making them seem more cumbersome and less competitive. The Upgrade: Green AND Competitive Now private investment banking firms such as Oakland-based Sustainable Capital, are coming to market with a redesigned green mortgages enhanced with best practices in residential rating systems, realtime energy monitoring, reduced interest rates as well as a true green capital supply chain. Here's how to distinguish the newer green mortgages from their predecessors:
  • A smaller carbon footprint. Reducing the home's carbon footprint is now the goal, as opposed to only water conservation and energy use reduction. The outcome of you having additional income from energy and water savings is still a main goal but the new green mortgages go steps further. Using best practice independent rating systems such as Build-It-Green’s Greenpoint system, a more in depth assessment of the home includes indoor air quality, construction materials, paints and carpets as opposed to merely better appliances, light bulbs and plumbing. Additionally, specialist vendors supply cutting edge monitoring technology, which provides you and the lender with continuous verification of the reduced energy usage and water conservation over the life of the loan.
  • Higher loan proceeds and lower interest rate. The loan qualification process and proceeds are comparable to what is on the market today from most banks, fixing a basic problem of the EEMs. Your rate of interest is reduced from comparable current market rates, based in part upon post-financing audits verifying the success of the green renovations and the results of ongoing energy monitoring.
  • Integration of incentive financing. The new green mortgages manage to integrate the diverse financial incentives offered to you from other sources such as local utility companies, state and federal governments. So you get additional help in the complicated search for the necessary funds to green your home.
  • True green supply chain. The new green lenders source loans using certified Eco-brokers, who are trained to sell green homes and can provide additional support and tips on going through the process of greening the house. Finally, the funded loans are packaged and sold off to socially-responsible funds, concluding a supply chain of totally aligned consumers, contractors, intermediaries, lenders and secondary market sources.
So now you do not have to put up with substandard financing alternatives in order to live (and invest) according to your values. Definitely much better than a few bucks off the closing costs and a new toaster! Click below to share any comments or feel free to pass this along to a friend who may find it interesting. - Lisa

1 comment:

Steve said...

Lisa, do you know whether there is a similarly designed product for the commercial real estate market available?