Boosting Homeownership with Energy Efficient Mortgages
Energy Efficient Mortgages (EEMs) have been nationally available to builders and homeowners since 1995. EEMs allow borrowers to get more homes with less money down. Since energy-efficient homes have lower operating costs, borrowers have more cash on hand to pay back their mortgages. Despite the amazing benefits of EEMs, They have been generally underutilized by single-family and multifamily homeowners. However, in recent years, there has been an uptick in EEMs being used, thanks in large part to Fannie Mae’s and Freddie Mac’s Green Mortgage Backed Securities (MBS).
How Green Mortgage-Backed Securities are Transforming Energy-Efficient Homeownership
Mortgage Backed Securities (MBS) are when lenders bundle together multiple separate mortgages into a single financial asset that can then be sold on the open market to private investors. This allows lenders to limit risk and receive upfront capital while giving investors a generally stable long-term investment.
Starting in 2010, Fannie Mae began offering Green MBSs backed by buildings that have EEMs. These Green MBSs are attractive to investors as studies show that EEMs are less likely to default compared to conventional mortgages. Green MBSs also meet Green Bond Principles, making them a perfect fit for Environmental, Social, and Governance (ESG) funds or for environmentally conscious investors. From 2012-2023, Fannie Mae’s Green MBS led to 1.2 million housing units obtaining energy efficient retrofits or green building certificates, preventing 800,000 tons of greenhouse gas emissions. Similarly, Freddie Mac offers their own EEM and Green MBS programs that promotes energy efficiency and housing affordability.
The creation of green mortgage backed securities has made it more attractive for lenders to offer energy efficient mortgages to their clients as they often sell the EEMs as a Green MBS for a greater return than a conventional MBS. Since EEMs are more profitable for lenders, they incentivize builders to favor EEM-eligible projects for development. This can be a per-door EEM incentive from the lender or access to lower interest rates for multifamily projects. Since EEMs usually require a green certificate like Energy Star or Zero Energy Ready Homes, builders can sell their homes for more than if the building was not certified. Builders who steer their potential homeowners to EEMs can charge more since homebuyers can get up to 115% of a conventional mortgage amount, as well as having a 97% loan to value ratio. Homeowners can buy a more valuable home than they otherwise would have been able to, and lower operating costs mean they have more cash on hand to pay off their mortgage.
How Leyton Can Help
Leyton can help builders and developers get the necessary required certifications to qualify their projects for EEMs at no additional cost! By getting Energy Star or Zero Energy Ready Homes certified, builders can claim the 45L tax credit, which would cover the costs of certification and then some. Talk with a Leyton expert to see if your project can make going green pay for them.
