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Energy Efficient Mortgage

Fannie Mae Green Mortgage Initiative

Colorado Pilot

Colorado was selected as one of the six pilot locations of the $100 million Energy Efficient/Green Mortgage Initiative: The first new product to be offered is the third generation of Fannie Mae's new Energy Efficient Mortgage Pilot. This will help consumers realize the benefits and cost savings of an energy efficient home. The added value of energy efficiency translates the monthly energy use savings into
additional mortgage funds; thus, giving a borrower more buying power. This program also allows the borrower to finance up to 100% of the energy improvements. This is a program for both new construction and existing properties. The savings benefit identified in a home energy rating may be added to the P & I payment and borrowed is qualified; giving them in increase in buying power.

Status: The approved lender today is GMAC Mortgage. Other lenders may incorporate the benefits of the energy efficient measures into most of Fannie Mae first mortgage products, including conventional fixed-rate and adjustable-rate mortgages

The Colorado Partnership Office announced a second pilot, on October 7, 1999, with the Colorado Association of Home Builders and Built Green of Colorado. The announcement included details of the new Green Mortgage program which is for new construction only and tied to the Built Green Program Checklist. We are allowing our lender partners to use the estimated monthly energy savings and water savings in qualifying borrowers as additional funds. The features of the pilot are as follows:

• Borrowers of all income levels can qualify;
• Borrowers get "more" house while reducing monthly expenses;
• Designed to combine with existing Fannie Mae mortgage products;
• Includes new and existing one-to four-family properties;
• Available for purchase or refinance;
• Includes properties that are energy-efficient in their current state as well as properties that need energy improvements added after closing;
• Home energy rating or evaluation through a prescriptive program that evaluates energy-efficiency and estimates the resulting cost savings for the consumer;
• New construction homes must meet the minimum standards for rating methods and prescriptive programs;
• Existing homes adding energy improvements must be cost effective where the energy savings exceeds the cost of improvements;
• The appraised value is obtained by using the sales comparison approach plus the lower of the present value of the expected energy savings, or the actual cost of the energy improvements; and
• When qualifying the borrower, the expected monthly savings are deducted from the PITI thus allowing the borrower to qualify for a bigger mortgage.

Status: The approved lender today is GMAC Mortgage. Other lenders may incorporate the benefits of the energy efficient measures into most of Fannie Mae first mortgage products, including conventional fixed-rate and adjustable-rate mortgages.

There are two additional phases in development to be added to the new pilot and in partnership with 'Built Green' of Colorado:

First an 'Affordable Green' mortgage product which will allow the consumers to put less money down of their own funds. The balance of down payment may come from other sources like an approved community seconds program or an employer assisted housing program or a gift from a family member or sources like rebates from manufacturers.

The second design in discussion is a three to ten year Guaranteed Resource & Energy Efficient program. Through this program the benefits identified may include:

1) builder distinction and name branding;
2) lender distinction;
3) home product distinction;
4) homebuyer resale value;
5) preferential mortgage product;
6) preferential builder warranty.

This bold concept has the following key points within the structure of the program:

• Components of an annualized guarantee of three to ten years to include:
  1. Energy savings - based on existing industry programs;
  2. Water savings - based on empirical average local use;
  3. Maintenance - based on industry annualized data.
• Collaborative guarantee backed by industry members;
• Offered by and for builder participants only;
• Established escrow protection accounts with contributions from:
  1. Product Manufacturers;
  2. Utility Providers;
  3. Non-governmental Organizations;
  4. Government Agencies;
  5. Product Suppliers.
• Builder Quality Training programs offered through the 'Built Green' University of Colorado.

Program development is on-going with a time-line delivery by year for the Affordable Green program; and the second annual NAHB Green Builder Conference held here in Denver in April 2000 for the durability initiative.

In addition, later in year 2000, we will begin to look at the aspects of Smart Growth and a location assistance component to all of these new pilots.