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RESNET Calls for Reforms of Housing Market and Mortgage Financing

Oct 28, 2013

RESNET has released a policy proposal that calls for the labeling of a home’s energy performance and including the monthly energy savings when calculating home ownership costs in mortgage financing. The intent is to bring transparency to the housing market and introduce greater rationality into mortgage financing.

Car and home appliance manufacturers have long been providing consumers with information about the energy efficiency of their products through MPG (miles-per-gallon) stickers and Energy Guide labels. As a result, consumers are able to make better-informed buying decisions. This, however, is not the case for homebuyers who for the most part are not aware of the energy performance of homes they are considering buying. Making HERS Index scores a requirement for homes financed through federal mortgage programs like Fannie Mae, Freddie Mac, FHA and VA, would be a start in the right direction to addressing this problem.

Current federal mortgage underwriting practices fail to take energy savings into consideration when determining the value and affordability of energy efficient homes. However, a recent study showed that energy efficient homes have a 32% less mortgage default rate. Therefore, RESNET proposes the adoption of a new formula to calculate how to determine housing affordability – one that would account for energy savings:

Principal + Interest + Taxes + Insurance – Monthly Energy Savings (PITI-ES) = TOTAL COST

The new formula would provide greater accuracy in determining housing affordability, and could make energy efficient homes more accessible to consumers than they are now.

The combination of labeling of a home’s energy performance in federal backed mortgages and the new way of calculating housing affordability in the mortgage loan will help homebuyers better understand the true cost of owning a home and allow energy upgrades to be financed in the mortgage loan.

To down the new policy initiative click on RESNET Call for Reform