Fueling Green Mortgage Reform: There Is Much Debate around How to Encourage More Energy Efficiency in the Nation's Housing Stock

Article excerpt

A policy debate is under way about the future of residential real estate finance--and it does not deal with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, or establishing the Consumer Financial Protection Bureau (CFPB) or determining the future of the secondary mortgage market. Rather, this debate pits ideas about the way residential mortgage finance is done against the way we use the resources of this planet. * If this sounds pretty serious, that's because it is to many people--and yet it is unknown or easily dismissed by many others. Still, the debate is rising to a pitch that may not be easily ignored for much longer. * Over the past 20 years or so, the environmental--or "green"--movement has taken on the issues of residential real estate only tangentially. Recently, however, the movement has become increasingly interested in residential real estate finance as a means of addressing a significant aspect of what it sees as a serious problem. * According to the Lawrence Berkeley National Laboratory, Berkeley, California (a member of the national laboratory system supported by the U.S. Department of Energy through its Office of Science, and managed by the University of California), 39 percent of all electricity and natural gas consumed in the United States goes to buildings; 2 1 percent of that is used in residential homes. * While the commercial and multifamily markets have a system for measuring the total operating costs, including energy consumption and expenses, the single-family market is criticized for not including this as part of underwriting. In fact, federal legislation proposes to require just that.

At the same time, there may be genuine opportunities for residential mortgage lenders to play a significant role in helping consumers reduce energy costs and improve the value of their properties.

There are many unresolved issues tied to this topic, so this article merely provides an introduction to the subject of the mortgage industry's role in energy efficiency.

The drain of a home

According to New York based McGraw-Hill Construction's 2011/2012 Green Home Builders and Remodelers Survey, 17 percent of all new homes being built today are designed to meet very stringent green standards, including in the use of energy, water, resource management, indoor air quality, site placement and compliance with national green building standards. Additional new-home green construction is being done at a lower standard that consists of just energy-efficient homes. The same study also projects growth at these higher green standards to reach nearly 40 percent within the next five years.

"Builders are adding energy efficiency to capture homebuyers today," says Laura Reedy Stukel, a real estate agent with L.W. Reedy Real Estate, Elmhurst, Illinois, and a consultant for CNT Energy, Chicago. Stukel is certified in green home improvements and is involved in several green real estate initiatives.

"That puts pressure on owners of older homes to seek resources to make the same sort of improvements more doable," she adds.

Robert Sahadi, director of energy efficiency financing at the Institute for Market Transformation, Washington, D.C., explains that the current inventory of homes tends to fall in two broad categories: new energy-efficient homes (some of which have higher green standards); and older homes that, unless modified, are energy-inefficient.

According to the McGraw-Hill Construction survey, these older homes are concentrated in the New England states and states such as Minnesota, Missouri, Nebraska, Kansas, California, Oregon and Washington. The opportunity for homeowners to remodel existing homes in these states is high.

Newer homes with green or energy-efficient features will have lower energy consumption and lower electric and natural gas costs than older homes. As this disparity grows with the furtherance of new green and energy-efficient home stock, older homes with lower energy efficiency and higher electric and natural gas costs will need upgrading to remain competitive with buyers. …