Saturday, February 5, 2011

SAVE act aims to factor energy efficiency in mortgages

Many in the real estate industry have for some time been trying to make the argument to consumers about "total home ownership costs". That is, considering not only your initial costs, but ongoing maintenance and utility costs in the equation. While banks seem to be a little behind the curve on this, proposed regulation known as the Sensible Accounting to Value Energy act (the "SAVE" act) would have federally backed mortgages, such as FHA loans, apply energy efficiency as part of the overall appraisal and underwriting standards when purchasing a home.

This is not necessarily a new concept, as energy-efficient mortgages (EEM) have been around for years. However EEMs have seen little use during their existence due in large part from a lack of understanding or familiarity by either consumers or lenders along with certain requirements that can be somewhat burdensome during a purchase transaction.

The SAVE act, on the other hand, seems to be gaining wide industry support to incorporate efficiency standards directly in the mortgage process. As one industry professional noted on current methods: "This means that a $5,000 upgrade for granite countertops is reflected in appraisals, while a $5,000 upgrade for a highly-efficient HVAC system is not." From a lender's risk management perspective, it only makes sense to include energy use in evaluating a mortgage as the hidden costs of high utility bills are a potential risk factor in a borrowers ability to repay.

I would anticipate that there will be some negative reaction in a few corners, most likely from those who would see their home as being the "loser" when compared to newer or more updated homes. However, whether these folks know it or not, buyers already discount the value of their homes as they become ever more savvy about looking past just the pretty face and seeing what lies beneath.

To learn more about the proposed standards and status of the regulations, see the Institute for Market Tranformation's SAVE act website.

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