The Federal Housing Financial Agency (FHFA) is currently seeking public comment on proposed changes to rules governing Fannie Mae and Freddie Mac’s “Duty to Serve” Underserved Markets. This provides us a terrific opportunity to sound off regarding the incorporation of a critical element into buyer disclosures: the efficiency of a home. Utility costs in a home may be unpredictable and for homeowners without much of a cushion of savings, it’s clear that these fluctuations have a very noticeable effect on their ability to make mortgage payments.
Indeed, a 2013 report by the Institute for Market Transformation (IMT) found that owners of energy-efficient homes had a 1/3 less chance of foreclosure than owners of inefficient homes. Robert Sahadi, director of energy efficiency finance policy at IMT at the time of the report, said, “Right now the lending industry is pretty much a function of Government Sponsored Enterprises,” (GSEs, which basically means Fannie and Freddie). “Ninety-five percent of all single family is going through those agencies, and they are pretty much doing whatever the agency guidelines suggest. So at this point we really have to get those agency guidelines to incorporate energy efficiency.” Hear, hear!
This is particularly important for the low-income housing market and for homeowners and prospective homeowners in the lower and lower-middle class, since a greater share of their disposable income is used to pay for necessities like food and shelter than in the upper-middle and upper classes. And it is for this group that the FHFA is issuing rules for the GSEs to follow, and the moment is right now for us to make our voices heard. It’s really simple — just click here and add your voice. Democracy in action! Here’s my submitted commentary, in case you need to see just how easy it can be.
I believe it’s critical for us to ensure that low-income homes are as energy efficient as possible, since this will help reduce mortgage risk, default rates, foreclosures, and displacements in a demographic that can least afford it. I believe we should increase PACE type programs. I would like to see Fannie and Freddie lead in creating a uniform buyer disclosure system in which borrowers would better understand the energy and water consumption of the home they’re about to buy, which should be incorporated in MLS listings and considered in every mortgage application. And last, I believe subsidies for home efficiency programs, especially for low – income demographics, should become the norm, given that they deliver multiple benefits for America: energy independence, carbon emission reduction, stabilization of homeownership rates, and decreased rates of foreclosures and bad loans.
Note that it takes a little time for them to review comments to determine that they’re not spam or x-rated, as I did not see mine go live immediately but it is there now. There are currently 77 comments. If we really tried, I think energy efficiency could become the number one most commented topic pretty dang easily. So get on it!
CleanTechnica and Important Media are proud to be building a home efficiency platform called, well, Home Efficiency:
We’ll be creating a self-auditing tool and an online store for LED lights and other DIY products, and guiding residents through the process of greening their homes. We’d welcome your comments on how to make that the most impactful and useful site possible, so please drop us a note in the comments below if you have suggestions.
If you’re interested in more information on the ins and outs of home efficiency rules, laws and standards, here is a transcript of an interview I conducted with the staff of the Rocky Mountain Institute.
What’s the current industry standard for disclosure of utility consumption/cost risk to potential homeowners, if there is one, and what would RMI love to see it changed to?
Potential buyers must request to see historical energy data and sellers are under no obligation to provide it. Some cities, Austin and Chicago for example, are starting to require it in their sale disclosure requirements but there is no “industry” standard. RMI believes this is an important part of the risk profile of owning a specific home and that it should be considered in underwriting and made available to prospective buyers. Energy bills on some homes can be as much as the mortgage, and are often as much as taxes and HOA fees.
What are the most current stats that show a connection between bankruptcy and utility costs?
This paper was cited in our Insight Brief and was conducted by the University of North Carolina and the Institute for Market Transformation. It found that default rates in energy efficient homes were roughly 32% lower than in non-energy efficient homes.
Does the MLS have sustainability characteristics in it now (I know that I’ve seen walkscore in some, but not sure that’s standard), and if not, why not? What would RMI like to see listed on MLS info that would be clear and easy for potential homeowners to understand (like a standardized fuel efficiency rating or a green home scale like the one I’ve seen in the EU)
There are approximately 750 MLS organizations in the US and each has their own set of policies as it relates to disclosure of information about a home for sale purposes. While states and cities mandate disclosure of many other factors regarding a home, these are not required to be disclosed until a home is under contract and the purchaser is going through their due diligence process. Therefore different MLSs provide sustainability characteristics based on their individual policies. As of October 2015, more than 50% of MLSes in the Council of MLS offered green verification fields (to report energy scores, green labels and certifications, and energy efficient features), but usage of the fields varies by MLS. Each of these types of information is useful for consumers, but energy cost estimates or scores (or, less ideally, normalized utility bills) are critical to enable consumers to understand the total cost of homeownership.
Widely adopted performance disclosures have the potential to not only protect homeowners and inform them to make the best investment, but also drive the entire market forward as more and more companies look to provide an increasing number of products and offerings to make this disclosure possible and beneficial on a broad scale.
What measures have the most effect in bang-for-the-buck home efficiency, in general, from what you can determine, and how would widespread adoption of these look?
Traditionally across the board, I believe the top three are: sealing and weather-stripping, smart-thermostats and lighting. If you want to go deeper and are willing to take a longer pay-back period it’s attic insulation and a more efficient HVAC or ground source heat pump. But what’s the ‘best bang for the buck’ largely depends on a few factors that vary city to city or region to region including your energy bills, utility rebates and incentive programs, and your utility’s business model (e.g. do they allow NEM etc.). To strip out confusion and disaggregation we and our partners aim to provide more transparent information to homeowners, and provide more ‘ready resources’ to undertake cost-effective upgrades regardless of their utility territory – essentially eliminating a lot of the guesswork.
Green Home Rating Photos Courtesy of Shutterstock and HomeEfficiency.com