How to cultivate a 'green mortgage'

Environmentally friendly home loans aimed saving energy reducing carbon


Recycling soda cans, using phosphate-free cleansers and making smart transportation choices can all improve the environment. But did you know that applying for a home loan also offers a chance to further the environmental cause?
“What many people don’t realize is that homes account for about 21 percent of our greenhouse emissions,” says Steve Baden, executive director of Residential Energy Services Network, which maintains certification standards for home energy ratings.
This is why improving home energy efficiency matters. And given the rising cost of heating and cooling homes, it can also matter to household finances.
Brian Berg, vice president for corporate communications at ShoreBank in Chicago, says consumers can save up to 45 percent off their monthly utility bills with an investment of just a few thousand dollars.
"This is why when someone comes to us for a mortgage or home improvement loan, we talk to them about how adding a ‘green’ element to their request might make more financial sense over the long run," says Joel Freehling, ShoreBank’s manager of "triple bottom line innovation."
(The "triple bottom line" refers to benefits for the bank, the community and the environment.)
These green conversations include talking about what it would take to make the borrower's home more energy efficient — from spending a few additional dollars and hours caulking to choosing qualified appliances and building materials. The idea is to help identify where the borrower can get the biggest bang for their borrowed bucks.
While the bank may wind up booking a larger loan than originally requested to cover the added energy improvements, it does so only to the extent that projected lower utility costs will offset the higher loan costs.
This should leave the customer in a better financial position to repay the loan. The home itself not only becomes more comfortable to live in but easier to sell — and potentially more valuable — due to its energy efficiency. Along the way, the community-at-large, not to mention the environment, benefit from lowered carbon emissions.
This is what makes the lending "green."
Anyone can lend green
Green mortgages — known as Energy Efficient Mortgages or Energy Improvement Mortgages — are not new. They trace their lineage back to the days of the Carter administration.
Nor are they unique to banks like ShoreBank, which holds its mortgages in its own portfolio, giving it greater flexibility in tailoring loans to each borrower’s circumstance. Theoretically, any conventional lender has the ability to go green.
That is because all the usual suspects — Fannie Mae, Freddie Mac, FHA and HUD — provide lenders with underwriting standards for structuring green loans to conform for resale into the secondary market.
The key difference between a "green" loan vs. a conventional one from a borrower’s perspective is that it requires an extra step — an energy audit. This can cost a few hundred dollars and may delay processing by a few days. But the audit’s cost can be rolled into the loan. Also, rebates and incentives are often available to offset the cost of the audit.
"There has been nothing special about the process over that of doing a conventional financing," says Lan Richart, who along with his wife, Pam, recently used ‘green’ financing to purchase and fund renovation of a multi-unit building in Chicago. "Actually, the energy audit would have been worth it even if the bank had not paid for it." The audit pinpointed ways they could further boost the building’s energy efficiency