Why Realtors should know about the
Energy Efficient Mortgage

Energy-efficient mortgages are an excellent alternative to cash-out refi's and high-risk mortgage loans. The only trouble is - few lenders seem to know how to do them. If you can find a lender who's willing to learn something new, you both can corner the market on older housing and/or helping first-timers qualify for homes in your area.

In 1979, Fannie Mae created the energy-efficient mortgage to be as conventional as a 30-year fixed, but last year only 27,000 energy-efficient mortgages were underwritten, a problem the organization is working to overcome with new product benefits and better training for lenders.

The program has tremendous appeal for borrowers because they can borrow more than they could with other conventional loans, make improvements, and enjoy the savings.

Just as loans require an appraisal, an energy-efficient mortgage begins with an energy inspection to see if a home needs more insulation, new windows, a new furnace or appliances. When the costs of recommended energy-based improvements are added up, they are rolled into the mortgage loan, allowing the borrower to finance the improvements without having to qualify for a bigger mortgage.

It's not economic sleight of hand - borrowers don't have to qualify for higher mortgages because the energy savings more than offsets the additional borrowing costs that are already rolled into the loan.

"My first client saved about $740 his first year in energy costs, but only paid $30 more a month for his energy-efficient mortgage," says mortgage loan officer Joel Wiese with Priority Mortgage Corp.

According to Fannie Mae guidelines, the full costs of improvements are also added to the appraisal, which means that not only 100 percent of energy-related improvements covered, the borrower sees 100 percent value for them in the appraisal.

The upshot for lenders and Realtors to understand is that this program enables buyers to safely qualify for more than they would otherwise. It also helps removes much of the age stigma from older homes, which constitutes the largest housing inventory in the U.S., particularly from the 1950s and 1970s vintages.

Buyers and sellers are increasingly reluctant to take on the chore of improving older homes because some of the cost of improvements aren't realized when they sell. According to Realtor Magazine's Cost VS Value magazine, the average return on investment for a window replacement is only 84 percent nationwide. A major kitchen remodel is only 79.4 percent.

If a homebuyer or seller could be encouraged to make energy efficient replacements under a loan that guarantees that 100 percent of the cost will be added to the appraisal, what's not to like?

"A home's energy costs add so much to the cost of operations, and that is what the banks are looking at now," says Wiese. "You may afford the mortgage, but can you afford the heating bill on this house?"

There is no Fannie Mae mortgage program that can't accommodate the EEM feature, according to Michelle Desiderio, senior product developer for Fannie Mae.

"About two years ago we looked at the product to make it more attractive to lenders and consumers and did a number of revisions that we thought would make it easier to promote," says Desiderio, "and we are promoting it to builders and lenders.

"It is a new product, so lenders have to learn something new," she says, "and we have done training for them, but we have the most success with someone who understands it like Joel. It is different from other loan products and they are easy but a lot of officers have a lot of products to sell, but once they do one, they can see it is easy, and what the benefits are to borrowers."

Desiderio suggests, "Realtors can offer an important role. They might shy away from pointing out what can be improved when they show a home to homebuyers - homebuyers want a perfect house, and this is a tool that can help them be more comfortable and enable them to direct a portion of their income toward housing instead of utility bills."

Realtors who are interested in working with lenders who understand how to do energy-efficient loans should check www.efanniemae.com for participating lenders, or contact the lender of their choice.

"As long as the lender is a Fannie Mae lender partner, we can add the energy efficient mortgage to a suite of products," promises Desiderio, "and Fannie Mae would train the loan officers and provide the materials and they would be good to go."

Wiese agrees that it is that simple. "I went to FHA workshop and they went through the regulations that HUD worked out and they piqued my interest. I realized that it was a hard program to understand."

When trying to get business from Realtors before, Wiese says they would ask him what is so special about him. Now he can tell them about the energy-efficient loans he's trained to provide.

"You have to have a niche," says Wiese. "I started doing more research for six months before I took a client through it, and even then it wasn't easy because the lenders didn't know how to do it either. A lot of lenders will say they know something about it, and they might at the national level, but at the local level, they didn't. So, when I did the first one, I had to teach my underwriter how to write this loan."

He says, "I look at how I can qualify more people and improve the home at the same time - it's a no-brainer."

That's also a no-brainer for Realtors.

Wiese advises, "If you can find a lender who is willing to do the little bit of extra learning and the work it takes to do these loans, you will have a new niche."