Lenders Corner

Energy Mortgage Information for Lenders

There is an emerging market force towards energy efficient homes. From Florida to Alaska mortgage lenders are increasingly using energy mortgages to make homes more affordable and poising their companies to capture this new market trend.

What is an energy mortgage? An energy mortgage is a mortgage that credits a home's energy efficiency in the home loan. There are two types of energy mortgages:

  • Energy Improvement Mortgage - Finances the energy upgrades of an existing home in the mortgage loan using monthly energy savings
  • Energy Efficient Mortgage - Uses the energy savings from a new energy efficient home to increase the home buying power of consumers and capitalizes the energy savings in the appraisal

In 1995 the Residential Energy Services Network (RESNET) was formed as a partnership between the national mortgage industry, Energy Rated Homes of America, and the National Association of State Energy Officials. RESNET's mission is to qualify more families for home ownership and improve the energy efficiency of the nation's housing stock by expanding the national availability of mortgage financing options and home energy ratings. RESNET is guided by a National Mortgage Industry Steering Committee. 

The RESNET National Mortgage Industry Steering Committee is co-chaired by Leland C. Brendsel, Chairman and Chief Executive Officer of Freddie Mac and Donald E. Lange, Past President of the Mortgage Bankers Association of America and President and Chief Executive Officer of Pacific Financial Services. Members of the steering committee include the chief executives of such leading mortgage companies as Fannie Mae, Norwest Mortgage, Inc., Chase Manhattan Mortgage, Countrywide Home Loans, GMAC Mortgage, PMI Mortgage Insurance, and United Guaranty Corporation.

The RESNET Mortgage Industry Steering Committee has identified the following reasons why the mortgage industry should support energy efficiency:

  • Increase the volume of mortgage loans
  • Qualify more first time home buyers for mortgage loans
  • Reduce the cost of home ownership
  • Reduce America's dependence on imported oil and aid the environment

The ability to leverage a home buyer's investment in energy efficiency increases the number of qualified home buyers and increases the purchasing power of the consumer. A recent analysis by the Environmental Protection Agency confirmed that energy efficient mortgages can have a dramatic impact on increasing the opportunities for home ownership. The analysis found that an average of 6.8% more families would be able to qualify for a mortgage through an energy efficient mortgage.

Another study published in the Appraisal Journal documented that the market value of a home increases $20 for every $1 decrease in the annual energy costs. According to a recent analysis by the Pacific Northwest National Laboratory building a home to exceed the Model Energy Code would result in an annual savings of $170 to $425. Applying these findings to the analysis published in the Appraisal Journal would equate to an increased home market value of between $4,250 to $10,625.

Lender's Guide to Energy Efficient Mortgages

The Guide is an overview of Energy Efficient Mortgages (EEMs) and a collection of documents and information that have been issued by the listed organizations with guidelines for how to issue and manage EEMs.