BY KRISTI EATON
Going green isn’t just for décor, food preparation and the workplace anymore. Being environmentally conscious has invaded the financial sector, but with the economy in a slow recovery process, it’s unclear whether it’s here to stay and will have a lasting influence in the banking industry.
“Green banking is a new industry sector, and it got launched at a difficult time as the financial crisis hit,” said Ann Logue, author of the book “Socially Responsible Investing for Dummies.” “It’s still unclear how much of it is real and how much of it is marketing, but it’s clear that people are interested in green technologies for residential and commercial real estate because they can save so much money in the long run.”
Logue said a handful of banks offer green financing options. “In a normal economy, banks are in the business of lending money for good projects of any sort, although many banks develop an expertise so that they can hire the credit analysts and bankers who understand a given industry,” she said.
For example, she said, there are banks that already specialize in real estate lending, small business banking or import-export banking. “This is a twist on that,” she said. “The idea is that the bankers would be better able to underwrite the projects because they would understand them better than a bank that does not have a green specialty.”
Most of the limited green finance going on now is in the commercial sector, she said. All residential lending in general is under a lot of stress because of the financial crisis and the collapse of the real estate values.
Financing a mortgage can be difficult — especially in this economy. But an Energy Efficient Mortgage may make the sting of paying for a house a bit easier. An Energy Efficient Mortgage, or EEM, is a mortgage that credits a home’s sustainable improvements within the mortgage itself. With EEMs, borrowers are able to finance those measures that will save money as part of a single mortgage stretching out debt-to-income ratios on loans. This allows borrowers to qualify for a loan amount that will pay for those sustainable improvements knowing that savings will occur due to lower life cycle costs.
“What it does is allow borrowers to take money [they might previously have been denied] if the funds will be used on efficiency improvements or to buy an ENERGY STAR rated house, under the idea that increased energy efficiency and reduced life cycle costs will free up money in the borrower’s future budget to repay the loan,” Logue said.
The Energy Efficient Mortgage is available at most major banks. FHA, Fannie Mae and Freddie Mac all have a version of “green mortgages” she said. The Veterans Administration also has an EEM available to qualified military personnel, reservists and veterans when purchasing an existing home. It caps improvements between $3,000 and $6,000.
The Energy Efficient Mortgage refers to all types of energy mortgages, including the Energy Improvement Mortgages, or EIM. Energy Improvement Mortgages are used to buy existing homes that will be retrofitted to include energy efficiency improvements and make homes last longer.
According to ENERGY STAR’s website, “EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements.”
An ENERGY STAR Mortgage is available to qualified homeowners in Maine, Colorado, Massachusetts, New York, New Jersey, and Pennsylvania. The mortgage is available to homeowners buying a home that has earned the ENERGY STAR label, are participating in Home Performance with ENERGY STAR, or those planning to make improvements to the energy efficiency in their homes and meet the income eligibility requirement of 80 percent of Adjusted Median Income.
With the ENERGY STAR Mortgage, during the 90 days following the closing of the mortgage, several improvements may be made to the home. Sustainable improvements may include building envelope sealing, duct sealing, improved insulation, furnace replacement and installation of high-efficiency appliances and installation of water reduction systems which have resulted in a 30 percent savings on monthly utility bills in some cases. For a $200,000 mortgage, a ¼ point discount on the interest rate could reduce the monthly payment by $40 to $50. Combined with the savings on reduced energy and water bills, this could result in a savings of $90 to $130 month.
GREEN FINANCING SECTOR
Many of the largest companies in the finance sector are creating programs to stay competitive. Fidelity National Financial, the largest title insurance and real estate service provider in the United States, launched the Sustainable Strategies program in November 2009.
“The company launched the Sustainable Strategies program to position our title insurance companies, underwriters and ancillary real estate service companies as the most eco-friendly in the industry in order to meet the needs of the emerging sustainable real estate market,” said Jeffrey J. Howell, national director of Sustainable Products.
As part of the program, Fidelity National Financial developed and implemented the LEED Project Certification Data Report in response to the growing number of LEED-certified buildings. “The report confirms the current status of LEED building certification, which is important for any stakeholder in a LEED transaction pursuant to sale, lease, encumbrance, or valuation of a LEED project,” Howell said. It is available for both commercial and residential buildings internationally. “The move toward sustainable real estate is undeniable.”
RESOURCES FOR GREEN FUNDING