A friend of mine, Phil Hall, is editor of Secondary Marketing Executive magazine, one of the more esoteric trade publications dealing with the secondary market for mortgages.
On a more prosaic level, however, Hall has become a very passionate supporter of something called the Energy Efficient Mortgage, or EEM. Sometimes called the "green mortgage," it is a type of mortgage that credits a home’s energy efficiency in the mortgage itself.
In Hall’s words, "With this product, borrowers are able to add energy-efficiency installations as part of a mortgage while extending the debt-to-income qualifying ratios. Thus the borrower can qualify for a larger loan amount on a home with superior energy efficiency."
What, you never heard of the EEM? Don’t worry you’re not alone. In fact, it’s like a top-secret government program; just where do we hide our nuclear waste or where in the White House was former Vice President Dick Cheney’s office?
While not quite as old as Cheney, the EEM has been around for a couple of decades. Back in 1992, Congress mandated a Federal Housing Administration pilot demonstration of EEMs in five states and then three years later, the pilot was expanded as a national program. Unfortunately, like an old bureaucrat, it sits in some obscure corner of the government waiting and waiting to serve our country.
And this really ruffles Hall. "You can’t hear of something if it is not promoted," he exclaims. "From what I gather, the industry has done NO job in promoting the availability of the product. It has been around for many years, but I’m not aware of any financial service entity that goes out of its way to tell people it has this product or the ability to originate this product."
Hall doesn’t just blame the mortgage bankers — the state housing finance agencies also have EEMs in their product lineup, but they are also not publicizing that fact.
EEMs are out there — you just have to be aware of them. For example, I tapped into the Energy Star Web site and it listed these subheads for EMM:
- Conventional EEM: offered by lenders who sell loans to Fannie Mae and Freddie Mac.
- FHA EEM: allows lenders to add 100 percent of the additional cost of cost-effective energy-efficiency improvement to an already approved mortgage loan (as long as the additional costs do not exceed $4,000 or 5 percent of the value of the home, up to a maximum of $8,000, whichever is greater).
- VA EEM: The Department of Veterans Affairs EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. …CONTINUED
Apparently, there was a brief moment earlier in this decade when enterprising mortgage brokers decided they were going to become specialists in this product and began listing on the Internet. I suppose the thinking was that they would become the financial industry’s Al Gore acolytes and ride the wave of "green" that was sweeping the globe.
I tried contacting a bunch of these companies. Either they didn’t return my e-mails and phone calls or were out of business.
Politically, Hall believes the Obama administration is missing an opportunity with EEMs. In November, when President Barack Obama announced another multimillion-dollar initiative, this time to speed the development of smart-grid initiatives as part of an effort to steer the nation into green-energy developments, nothing was said of including EEMs.
Hall, at the time, wrote an editorial in his magazine, noting, "This omission is fairly glaring, considering that the administration has the twin goals of improving the energy sector and rebuilding the mortgage banking and housing markets."
I’m guessing the president has never heard of an EEM, nor has anyone on his team including those handling the housing crisis. I asked Hall what he thought and he responded, "I’m under the impression a lot of people in Washington don’t even know this exists. The GSEs (government-sponsored entities) and Federal Housing Administration aren’t doing anything to promote it or encourage its usage by the lenders that are relying on the federal government to stay afloat."
Before we all get emotionally squishy about going green with our next mortgage, part of the problem with EEMs has been built-in impracticalities. To be eligible for an EEM, an energy audit needs to be done. Even Hall admits this is one of the big stumbling blocks in that an outside auditor determines whether your home meets what the Environmental Protection Agency (EPA) requires. And, good luck in finding a proper auditor. But, if you do, the whole process adds cost and time.
To sum up, loans can’t be approved without an expensive energy audit that passes a rating system for both the EPA and Department of Energy. This adds more time to the process and the way things are today, lenders are eager to originate mortgages quickly. The energy audit slows down the process.
As for costs, the better way to consider the EEM is that it is a long-term investment and it will save you money down the road since you don’t have to go back and spend extra dollars on energy efficiencies; this is all taken care of from get-go. In the past, a lot of people when they had to make their house energy efficient would get a second home loan. Now, it is done when the home is acquired.
Hall touts two other reasons for getting an EEM: They can help borrowers get a handle on spiking energy prices, particularly in the northern states where winter chills drive up heating bills; and in the Midwest and Northeast, many homes were built before the implementation of today’s energy-efficient standards were in place, so bringing them up-to-date would boost home values for older properties.
Hall concludes, "This is one of those products like reverse mortgages that have been around for many years and for whatever reason never really got off the ground."
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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