Benefits of Ratings to Lenders

Qualify more first time home buyers for mortgage loans

Having enough money for a down payment is a major barrier to home ownership for many families. The energy mortgage addresses this problem through crediting a home’s energy savings in the loan qualification process. The new Fannie Mae "My 

Community Energy Efficient Mortgage" product offers 100% Loan-to-Value and only $500 in closing costs. Analysis by the Environmental Protection Agency projects that an average of 6.8% more families would be able to qualify for a mortgage through an energy efficient mortgage.

Reduce the cost of home ownership

The cost of heating and cooling a home is the highest cost of housing outside of the mortgage loan. The impact of energy costs presents a special burden to lower income families. Fannie Mae estimates that low income families spend an average of 19% of their annual income on energy bills. Energy efficiency reduces this burden thus freeing more money for housing.

Participate in energy mortgage programs

Energy mortgages increases a consumer’s home buying power by crediting the monthly energy savings in the mortgage. All energy mortgage programs require a home energy rating to estimate the savings and verify the home’s energy efficiency. The Fannie Mae energy mortgage product is underwritten in the Desk Top Underwriting automated loan processing program. The rating report provides all of the information a lender needs to underwrite the loan.

Determine the relative energy efficiency of the home being financed

The energy rating presents information on the energy efficiency of a home in non-technical and easily understood terms (the star rating). This will allow a lender to know at a quick glance the relative energy efficiency of a home. The rating will tell if the home meets the minimum energy code (4 Stars) or meets the ENERGY STAR Homes standard (5 Stars).

Increase confidence in the home's marketability in case of default?

Of vital concern to mortgage to the marketability of a home if the loan goes into default and the lender must foreclose the home. A lender should feel more confident financing a home that has been verified as energy efficient by a rating because it will be more marketable. In addition more families would be qualified to purchase the home through a energy mortgage.

Receive Community Reinvestment Act credits

Congress requires that lenders target a certain percentage of their loans to meet the needs of low income and minority families (the Community Reinvestment Act - CRA). A lender must receive a set amount of CRA credits to keep their license. The Federal Home Loan Bank sets the policy for the issuing of CRA credits. The Federal Home Loan Bank has ruled that energy mortgages targeted to low income and first-time buyers qualify as CRA credits.

Reduce America’s dependence on imported oil and aid the environment

A mortgage lending firm can differentiate their business as responsible corporate citizens by promoting energy efficiency housing that not only fosters more affordable housing to more families but also addresses the national concerns over the environment and national security. The House Energy Committee is currently drafting comprehensive energy and climate change legislation. Section 204 mandates that the Environmental Protection Agency "establish a building energy performance labeling program with broad applicability to the residential and commercial markets to enable and encourage knowledge about building energy performance by owners and occupants and to inform efforts to reduce energy consumption nationwide".

The Home Energy Rating System (HERS/BPI) will be the base standards.

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