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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2011

The Case for Sustainability Grows Stronger

Environmental and economic sensitivities go hand in hand — and there’s plenty of room for you

The Case for Sustainability Grows Stronger

Today’s homebuyers want value. As mortgage professionals adjust to buyers’ shifting demands — and to the changing marketplace — they should seek new ways to establish business dominance. Moving forward, one of the best ways to do that will involve promoting and providing environmentally and economically sustainable mortgage products. Here’s a primer.

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As much as the housing boom of the late 1990s through 2006 spurred larger home sizes and jumbo-mortgage proliferation, the downturn that followed has created desire for smaller homes and more-affordable loans. At the same time, a renewed focus on energy efficiency and environmental sustainability has spread across the country.

Many homebuyers have chosen to walk away from mortgages they perceived as no longer financially beneficial or logical. Families have seen their finances ruined. Older Americans have watched their retirement savings disappear. As these events have played out, younger consumers have watched and learned. For them, a manageable financial future is paramount.

Although the lessons taught have come with much pain, the future looks brighter because of them. This is especially true for mortgage professionals who have paid attention and now look to provide their clients smarter lending products and pathways to more-sensible ways of living.

Around the country, government agencies and nonprofit organizations are spurring the shift to a green economy. Federal, state and community regulators are establishing goals and rebate programs for homebuyers and homeowners who commit to reducing their impact on natural resources.

Cities are establishing greenhouse-gas-reduction plans, and community leaders are engaging local nonprofits and others to support the effort. Many of these plans take a holistic view of land use, transportation, energy conservation, waste reduction, green infrastructure, and public health and safety.

The trickle-down effect of the housing decline and sustainable-planning goals will impact all aspects of the housing market. In all likelihood, we will see a substantial shift away from urban sprawl. Instead, close-in communities built around transportation hubs will focus on walkability and sustainable living.

By becoming sustainability experts, mortgage originators can give their businesses an edge for years to come.

Mortgage programs

Mortgage professionals seeking to promote their green expertise should start with a working knowledge of the following four programs:

  1. Energy-efficient mortgages (EEMs): Fannie Mae, Freddie Mac and the U.S. Department of Veterans Affairs offer EEMs. The Federal Housing Administration (FHA) insures many EEMs. The loans are used to add energy-efficiency upgrades to an existing home. Loan amounts are determined in part by calculating the present value of planned energy savings for the useful life of the energy improvements.
  2. FHA 203(k): This is FHA’s primary program for home rehabilitation and repair, including energy-efficiency projects. A streamlined version lets homebuyers finance as much as $35,000 into their mortgage for improvements or upgrades before move-in. An EEM can be combined with a 203(k) loan. This arrangement can be a great financing solution in declining markets.
  3. FHA’s weatherization program: This can be added to FHA-insured EEMs. It allows for mortgage increases of as much as $2,000 without separate value determinations for energy-related improvements. Larger loan amounts are permitted but require separate value determinations.
  4. PowerSaver: This pilot program sponsored by the U.S. Department of Housing and Urban Development lets homeowners finance as much as $25,000 in energy improvements with a second, subordinate mortgage for as many as 20 years.

Gaining expertise in each of these programs will set you on your way to becoming a green mortgage originator. To increase your likelihood of success, you also must expand your business relationships.

Key relationships

One of the best ways to increase your expertise in any given area of the mortgage business is to surround yourself with professionals from whom you can learn. These associates also should help you in the fundamental practice of originating loans.

Here are some of the most-important relationships to develop in your pursuit of sustainable lending:

  • Green lenders: Establish relationships with at least two lenders that offer energy-efficient financing. Having two lenders offers you a backup at all times. If one drops a program, you can work with the other without affecting your clients. Be sure you know each lender’s overlays. Lenders often interpret guidelines differently or have limitations on what they accept.
  • Green homebuilders: Identify two or three builders certified by the Building Performance Institute (BPI), an organization that develops standards and offers credentials for green builders and retrofitters. Many rebate and incentive programs require a certified BPI professional to manage the project. Also, some BPI contractors offer free educational resources you can tap for yourself and for your clients. By forging and maintaining relationships with BPI-certified builders, you can maintain great access to emerging information.
  • Green-minded real estate agents: One of the best ways to determine if real estate agents are committed to environmental sustainability is to ask them if they’re a National Association of Realtors (NAR) Green Designee. Realtors who pass NAR’s Green Designee certification course have received advanced training in sustainable building and business practices. By teaming with these real estate agents, you can keep abreast of emerging trends and build partnerships with like-minded professionals. When you prove your green-lending expertise, you also should begin to receive referrals from these agents. For more information, visit green

Generally speaking, the more relationships you form, the better off you’ll be. In looking to meet other green-minded professionals, consider the following organizations:

  • U.S. Green Building Council,
  • Urban Land Institute,
  • Congress for the New Urbanism,
  • The American Institute of Architects,
  • Local neighborhood and community associations

You also should be aware of the Green MLS Tool Kit (, an industry collaboration aimed at promoting relationships, ensuring fair valuation of green homes, and educating consumers and industry participants.

Valuation issues

Understanding fair valuation and appraisal trends is another important aspect of establishing your sustainable-financing credentials. By learning the intricacies of valuation, you can position yourself and your company appropriately,

In the aftermath of the housing collapse, Americans are keenly aware that real estate doesn’t always increase in value. On the other hand, most people don’t give energy savings its due respect in relation to home values. According to some estimates, a home’s value increases by $10 to $25 for every $1 reduction in annual utility bills. In other words, a $100 monthly reduction in energy usage could increase a home’s value by $12,000 to $30,000.

Who Are Green Homebuyers?

The National Association of Realtors has summarized the following types of green homebuyers:

  • Economizers think going green is the best way to control increasing energy costs.
  • Investors look to cash in on future demand for green homes.
  • Health-conscious buyers may have allergies or wish to avoid building materials possibly linked to illness.
  • Idealists want to minimize their carbon footprints and live responsibly.
  • Lifestyle-focused buyers believe green is a better way to live.
  • Eco-chic buyers may not subscribe to the core principles of living green but like the idea.

Federal legislation introduced by Sen. Michael F. Bennet, D-Colo., could potentially promote energy-efficiency renovation by requiring mortgage underwriters, when working with federal mortgage programs, to include a home’s monthly energy payments into the principal, interest, taxes and insurance (PITI) calculation. In other words, PITI would become PITI plus E (energy). This would let borrowers with lower utility bills qualify for larger mortgage amounts.

Mortgage originators should pay careful attention to this legislation — dubbed the Sensible Accounting to Value Energy (S.A.V.E.) Act — and other efforts to mandate changes focused on the economic and environmental sustainability of the mortgage and real estate markets. You should strive to become an expert on developing trends before they gain widespread attention.

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Green homes and energy-wise mortgage products will continue to gain market popularity for years to come. In the near future, energy calculations could become a key ingredient of every home purchase. Mortgage brokers and originators who embrace the shift — and who place it in a larger context of sustainability — can provide the value today’s homebuyers seek and enjoy the rewards that often follow major market adjustments.


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