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Energy Efficient Mortgage

Energy Efficient Mortgage Variance: Draft for Discussion Purposes Only

Draft #12 9/30/99

This variance ("Variance") is attached to and made a part of the Master Agreement, and supercedes the Energy Efficient Mortgage guidelines in Part VI, Chapter 2, Section 216 and Part VII, Chapter 3, Section 305 of the Selling Guide. The Lender and Fannie Mae agree that, except as provided in this Variance, all other requirements of the Fannie Mae Selling and Servicing Guides shall be followed. Any breach of the terms and conditions of this Variance shall be deemed to be a breach of warranty by the Lender, as provided in Part I, Section 201.01 of the Selling Guide. In the case of any inconsistencies between the Guide and this Variance, this Variance shall control. In this Variance, capitalized terms shall have the meanings defined in the Guide, and, where stated, the meanings defined in this Variance.

The Lender may deliver up to $____________________________ of Energy Efficient Mortgages (each, an "EEM Mortgage") pursuant to this Variance.

Energy Efficient Mortgages

An EEM Mortgage is a Mortgage secured by a Property (i) rated "Energy-Efficient," as defined by this Variance, or (ii) that will benefit from energy efficiency improvements that meet the criteria set forth in this Variance ("Energy Improvements") (each, an "Energy Efficient Property"). A Borrower applying for an EEM Mortgage is allowed the benefit of the preferred underwriting guidelines and property value adjustment set forth in this Variance. The preferred underwriting guidelines and value adjustment set forth in the Variance are to be used in conjunction with standard Fannie Mae mortgage products in accordance with the terms of the Selling Guide.

Certification

To be rated "Energy Efficient, " a Property must be evaluated and certified under a certified energy rating system (each, a "Rating System"), or built to specific building standards proven to achieve energy efficiency ("Prescriptive Programs").

Fannie Mae currently recognizes two national organizations that certify Rating Systems and the training of certified energy raters ("Raters"): the National HERS Council and RESNET.

Rating System

The Rating System is used by the Rater to evaluate the energy efficiency of the home. In new construction, the Rating System compares the energy-efficiency of the home against that of a "reference house," which is based on the 1993 CABO MEC. For existing homes that would benefit from Energy Efficiency Improvements, the Rating System compares the energy-efficiency results of the home in its improved condition following completion of the Improvements against those of the home in its "as-is" condition. The Rating System determines a point score and calculates the estimated monthly energy cost savings ("Savings") based on the average utility rates and usage data specific to the geographic area in which the Rater operates.

Eligible Properties

Properties eligible for the EEM Mortgage shall satisfy the following criteria:

• The Property must be a one- to four-family owner occupied residential real property. Manufactured homes and cooperative units are not eligible.

• Newly constructed homes or homes which will be constructed using the EEM Mortgage proceeds must exceed the 1993 CABO MEC guidelines and/or meet the minimum standards for Prescriptive Programs.

• Existing Properties that are Energy Efficient "as is" must meet or exceed the 1993 CABO MEC guidelines.

• Existing Properties that would benefit from Energy Improvements must meet the following guidelines:

  • The Energy Improvements must be "Cost Effective". The Energy Improvements are "Cost Effective" if the present value of the Savings ("Savings PV") resulting from the Energy Improvements exceeds the installed cost of the Energy Improvements ("Installed Cost"). Savings PV is calculated using the Annual Percentage Rate disclosed for the Mortgage at the time of consummation ("APR")for a term not to exceed the weighted average physical life of the Energy Improvements.

  • The total cost of the Energy Improvements cannot exceed fifteen percent (15%) of the Property’s adjusted appraised value;

  • Proposed Energy Improvements not completed prior to the date of consummation of the Mortgage must be completed within six months from the date of consummation of the Mortgage.

Eligible Mortgages

The EEM Mortgage is an underwriting variance that may be used with any first-lien fixed or adjustable rate mortgage originated in accordance with the requirements of the Selling Guide. However, when the EEM Mortgage is used to finance Energy Improvements to an existing Property and such Energy Improvements are not completed prior to the date of consummation of the Mortgage, except as otherwise provided in this Variance, the terms and conditions of the HomeStyle® Remodeler Selling Guide shall control. If the EEM Mortgage is used to finance Energy Improvements to a property to be constructed, except as otherwise provided in this Variance, the terms and conditions of the HomeStyle Construction-to-Permanent Loan Pilot shall control.

Appraisal

The Lender must attach to the appraisal the completed Energy Appraisal Addendum form (attached hereto as Exhibit "A") showing the Energy Efficiency Value Indicator ("EEVI"). The Lender is responsible for reviewing the appraisal and determining that it supports the appraiser’s assumptions, data, analyses, rationale, and conclusions concerning the market value of the property. The Lender will calculate EEVI using data provided by the Rater using the Rating System and the EEVI will be added to the appraised value by the Lender to achieve the Total Estimated Value ("TEV") of the Property. If Energy Efficient property comparables do not exist, Fannie Mae will accept the TEV as the appraised value.

If the Property seller obtains an Energy Rating and makes Energy Improvements before obtaining a purchase contract on the Property, the Lender may use the TEV as the appraised value provided that the appraisal is dated within 120 days of the Energy Rating and the rating meets the eligibility requirements as outlined above.

Qualifying the Borrower

Loan-to Value Ratio: The Loan-to-Value Ratio ("LTV") for the EEM Mortgage will be based on the lesser of the purchase price or the appraised value of the Property, plus the EEVI. The EEVI shall be:

• The Savings PV, or

• where Energy improvements will be made to an Existing Property, the EEVI shall be the Installed Cost of the Energy Improvements.

The appraised value must be based on the market value indicated by the sales comparison approach.

The maximum LTV is determined by Borrower qualification for the specific mortgage product under the Selling Guide. Increases in LTV may result in additional PMI requirements. The Borrower has the option to increase the down payment or finance 100% of the Energy Improvements, provided the final LTV does not exceed the maximum LTV for the product. The Lender is required to fully disclose to the Borrower the effects any increase in LTV may have on the interest rate and/or mortgage insurance charged to the Borrower.

Housing Expense-to-Income Ratios: The expected Savings may be used in qualifying the Borrower. The maximum total monthly payment of PITI may be increased by the estimated Savings, allowing the Borrower to qualify for a higher Mortgage amount.

For example:

Assume the borrower is buying an existing home which would benefit from Energy Improvements, the total cost of which will be $3500.

Effect on borrowers monthly P&I and energy costs

Loan File

The Lender is responsible for the integrity of the documents contained in the Loan File. Each hard-copy Loan File must contain sufficient information to reach an informed decision about whether to approve the EEM Mortgage and, in addition to the documents required by Part I, Chapter 4 of the Selling Guide, must contain:

• the original Energy Rating form;

• the original calculation of expected Savings (the "Savings Calculation"); and

• a listing of the Energy Efficient features of the Property.

Where Energy Improvements are completed after the Energy Rating is performed, the EEM Mortgage loan file also must contain:

• a copy of the Borrower or contractor work estimate or Construction Contract;

• the original Construction Loan Agreement and the original of each Request for Advance;

• the original Modification Agreement, if any;

• the original "as-completed" Energy Rating Form;

• the original "as-completed" Energy Savings Calculation;

• the original of any required Property inspection report; and

• the original Completion Certificate;

Special Feature Codes

The Lender must include Special Feature Code 124 on the Loan Schedule (Form 1068) for cash transactions, and on the Schedule of Mortgages (Form 2005) for MBS transactions.

ENERGY APPRAISAL ADDENDUM

[Note: The first part of this form, form 1004C-1, revised 9/99, is to be completed by the Energy Rater and submitted with the Energy Rating report. The second part is to be completed by the Lender. The form should be attached to the Residential Appraisal Report and submitted in conjunction with the report supplied and signed by the certified home Energy Rater.]

To be completed by the Home Energy Rater:

I, _______________________________________________________certify that:

• I am the [title] of [company], a certified home Energy Rater.
   

• The home Energy Rater is certified by one of the following national organizations:
   

  • RESNET

  • HERS®-Council
     

• The rating system used to evaluate this home’s performance was certified by the organization identified above;
   

• Professional judgment was employed in the evaluation of the home energy features and system efficiencies; and
   

• The Savings resulted from the comparison of the expected energy costs for the Property as improved against one of the following:
   

  • The current energy costs for an existing home

  • The estimated energy costs for a similar new home built to CABO MEC 1993.

Date: _________________      Rater’s Signature: _____________________________

To be completed by the Lender

* PV is calculated using the Annual Percentage Rate disclosed for the Mortgage at the time of consummation for a term not to exceed the weighted average physical life of the Energy Improvements, as supplied by the Energy Rater.

The above EEVI represents an added value to the Market Value conclusion set forth in the appraisal report.

The Lender accepts the Savings or Installed Cost, as applicable, as defined by the certified home Energy Rater.

Date: _________________ Lender’s Signature: _____________________________

SPECIAL LIMITING CONDITION FOR USE WITH THE
ENERGY EFFICIENT MORTGAGE

In providing the Adjusted Value Conclusion, the Lender has added to the Appraised value of the Property the Energy Efficiency Value Increment (EEVI), defined as the Savings or the Installed Cost of Energy Improvements, as applicable, provided by the home Energy Rater. The Lender has used acceptable valuation methodology in including the Energy Efficiency Value Increment (EEVI) in the absence of comparable market data on energy efficient Properties. The results of the Adjusted Value Conclusion are subject to a variance based on the effective use and maintenance of the items and the lifestyle of the occupants of the Property.