ENERGY STAR Webinar: Energy Efficient Mortgages (EEMs) 101 Brian Ng Lender Partnership Coordinator ENERGY STAR for Homes U.S Environmental Protection Agency

Purpose of the Webinar Provide information about EEMs and other home financing options Provide answers to EEM questions

Today’s EEM Webinar Presenters Norm Ferrier Manager Security Mortgage Corporation Howard Banker Chief Lending & Investment Officer Opportunity Finance Network

What is an EEM? Includes the cost of energy efficiency improvements in the loan (purchase or refinance) Allows use of stretch ratios due to energy savings, allowing borrowers to qualify for a larger loan and a better, energy efficient home A home energy rating is typically required to determine the cost and savings associated with the energy efficiency measures

Why are EEMs Relevant? Increased interest in energy efficiency and climate change Homeowners looking for ways to increase home value and decrease utility costs Help borrowers qualify for larger loan Reduce upfront costs of efficiency improvements Energy efficiency provides a return on investment: Lower energy use and lower utility bills Improved home comfort and durability Increased property value Reduced air pollution / improved environment

EEMs can finance ENERGY STAR measures ENERGY STAR Qualified Homes: –Homes that are independently verified to meet stringent energy efficiency guidelines established by the U.S. EPA –Typically includes new single-family, low-rise multifamily (3 stories or less), manufactured and modular homes ENERGY STAR Qualified Products: –Over 50 product categories including light fixtures, CFLs, refrigerators, dishwashers, clothes washers, window ACs, windows and doors Home Performance with ENERGY STAR: –A whole-house energy efficiency assessment and improvement process

The Partner Perspective EEM’s that are available How lenders process them The EIM for existing homes What is Available to Partners? Norm Ferrier ENERGY STAR Lender Partner Security Mortgage Corp, MI

Who Offers EEMs? Fannie Mae –(efanniemae.com) Freddie Mac –(freddiemac.com) FHA –(hud.gov/offices/hsg/sfh/eem/eemhome.cfm) VA –(homeloans.va.gov/rlcweb.htm )

Who Offers EEMs? Fannie Mae (efanniemae.com): –Allows income to be increased by the projected energy savings, enhancing qualifying ratios –Adjusts home value to reflect value of energy efficiency features –Allows up to 15% of adjusted value to be financed for energy upgrades

Who Offers EEMs? Freddie Mac (freddiemac.com): –Allows for higher housing expense to income and debt to income ratios if home is energy efficient or contains energy efficient items –Purchase price may include the cost of the property plus actual cost of energy efficient improvements

Who Offers EEMs? FHA (hud.gov/offices/hsg/sfh/eem/eemhome.cfm): –Borrower can finance into an already approved FHA loan 100% of cost of cost effective energy efficiency improvements –Allows for 2% debt to income stretch –Improvements financed may be 5% of property value ($8,000 cap has been lifted) or $4,000 whichever is greater –Maximum FHA mortgage limit can be exceeded by the amount of the energy package

Who Offers EEMs? VA (homeloans.va.gov/rlcweb.htm ) : –Allows up to $6,000 to be added for energy upgrades –No additional appraisal requirements

Example of Home Energy Rating Report

Why Aren’t EEMs Popular? Most lenders and realtors don’t know about or understand EEMs EEMs are most useful for borrowers who can already qualify for a mortgage Appraisers don’t know how to incorporate energy savings value into appraisal Require additional steps (i.e., obtain rating, establish escrows)

Other Green Mortgages National and local lenders offer their own green mortgages These usually don’t count energy savings as qualifying income Examples: Bank of America’s Energy Credit Mortgage - $1,000 back at closing for purchase of an ENERGY STAR qualified home PNC Bank – local lender in MD offering special financing for homes undergoing improvements through MD Home Performance with ENERGY STAR ENERGY STAR Mortgage Pilot Program – approved lenders offer borrowers a real financial benefit above energy savings (interest rate reduction, closing cost discount).

ENERGY STAR’s Lender Partnership Lenders can become partners to use the ENERGY STAR logo to promote EEMs and ENERGY STAR Mortgages Lenders must submit a partnership agreement Lenders must have first done one EEM before becoming a partner, and must do three EEMs per year to maintain active partner status Partners are listed on ENERGY STAR’s website (

Uses of the Product by Home Builders Howard Banker Managing Director Energy Programs Consortium Environmental Protection Agency Using Energy Star Mortgage Products in Pilot States

Energy Programs Consortium (EPC) EPC is a joint venture of: –The National Association of State Energy Officials (NASEO),NASEO –The National Association of State Community Services Programs (NASCSP) (weatherization and community service programs directors)NASCSP –The National Association of State Regulatory Utility Commissioners (NARUC)NARUC –The National Energy Assistance Directors' Association (NEADA) (Directors of Low-Income Home Energy Assistance Program)NEADA EPC’s mission is to foster coordination and cooperation among state and federal agencies in the areas of energy policy and program development.

Energy Star Mortgage The ENERGY STAR Mortgage Program is a public-private partnership directed by the Energy Programs Consortium, in collaboration with the U.S. Environmental Protection Agency and the U.S. Department of Energy. An ENERGY STAR mortgage offers homeowners and home purchasers affordable, non-predatory financing for home improvements that will cut their energy use by at least 20 percent. The lender must provide an additional consumer benefit to use the brand.

Why Energy Star Financing? ENERGY STAR® is recognized by over 70% of Americans Lender uses nationally recognized brand. In exchange, the lender must provide the consumer an “additional benefit”. Which provides the lender an additional marketing advantage. EPC approves the “additional benefit. Easier integration of energy audit systems with financing tools. Provide an array of financing tools and marketing approaches to achieve scale. All consumers are not the same.

Questions? Howard Banker Managing Director Energy Programs Consortium st Street NW Washington, DC Brian Ng Lender Partnership Coordinator ENERGY STAR for Homes U.S Environmental Protection Agency Norm Ferrier Security Mortgage Corp.