Moderated by Rick Badie
U.S. Sen. Johnny Isakson has co-sponsored legislation to require federal lending agencies to consider a borrower’s expected energy costs when they underwrite mortgages. The SAVE Act has support from consumer groups and the housing and manufacturing industries. The mortgage banking industry says the profession is regulated enough.
By Todd Raba and Allan Merrill
For those in the housing industry, including home building and mortgage lending, the Great Recession was almost as hard a blow as the Great Depression. The home building and contracting sector — a key source of good blue-collar jobs — saw unemployment rates soar more than twice the national average. It will likely be years before the housing sector fully recovers.
There are signs of hope for home building. New legislation — known as the SAVE (Sensible Accounting to Value Energy) Act — would bring the cost of energy and the value of energy efficiency into the home appraisal/mortgage process. It would reward homeowners and builders for installing more insulation, better windows and more-efficient HVAC systems. It would be a boon for homeowners, home contractors and builders, and a boost for energy efficiency.
Sen. Johnny Isakson, R-Ga., is leading the charge on the SAVE Act, co-sponsored by Sen. Michael Bennet, D-Colo. It is based on a simple premise: that the value of a home should reflect real energy costs and the real financial benefit of making a home more energy-efficient. The senator hopes his bill will allow American homeowners to finance cost-effective home energy upgrades as part of traditional mortgages, improving access to the comfort and money-saving benefits of efficiency without increasing the cost of home ownership.
Home owners and buyers frequently learn their energy bills each year add up to more than property taxes or home insurance. If more homeowners knew that going in, they’d have a greater appreciation for the pocketbook benefits of installing greater levels of insulation and other products aimed at reducing heating and cooling costs.
When Isakson introduced the SAVE Act last fall, he pointed to a national study conducted by the American Council for an Energy Efficient Economy and the Institute for Market Transformation that estimates the SAVE Act, by the year 2020, would create 83,000 factory and construction jobs and generate $1.1 billion in savings to consumer energy bills.
Moreover, the SAVE Act would help make more secure the more than 250 jobs at the Johns Manville insulation manufacturing facility in Winder as well as spark additional manufacturing and construction jobs throughout the state. The Leading Builders of America expects the SAVE Act to add construction jobs in Georgia.
A few people in the mortgage industry have raised concerns that the SAVE Act will make it more difficult for prospective homeowners to obtain mortgages. Those fears, as Isakson knows, are misplaced. In fact, the SAVE Act specifically directs lending institutions to adjust their loan calculations to make it more likely that new homeowners will be able to pay their mortgages. And energy-efficiency improvements actually reduce home-ownership costs.
Isakson’s SAVE Act is a win for builders, contractors and insulation manufacturers, for current and future homeowners and energy efficiency. It’ll go a long way toward getting the Georgia housing and renovation industry out of the Great Recession.
Todd Raba is chief executive officer of Johns Manville, a Denver-based manufacturer. Allan P. Merrill is chief executive officer of Atlanta-based Beazer Homes USA.
By Rick Badie
A coalition of high-profile organizations and organizations stand behind the SAVE ACT, a bill that would require federal loan agencies to add heat and electricity costs to a home’s value in mortgage underwriting.
However, the mortgage banking and financial industries aren’t too keen on the legislation. I talked to Michael McQuiggan, managing partner for California-based Tri-Emerald Financial Group and chairman of the green lending committee for the Mortgage Bankers Association, about SAVE.
Q: Who stands to benefit the most from SAVE, homeowners or underwriters?
A: Everyone benefits from having greener, more energy-efficient homes, but the lenders would have to verify more information to make the loans. The homeowner may have to be patient in the closing schedule to ensure the additional steps are taken. This will also result in additional costs to the consumer at the front end of the process.
Q: What effect has the Dodd-Frank Wall Street Reform and Consumer Protection Act had on mortgage lending?
A: The industry has seen the dozens of new regulations dealing with the mortgage origination process. The biggest concern is the difference in definition and calculations of points and fees. A lender may be in compliance under one new regulation only to find out they are out of compliance with another based on the way the rules are applied. To add new regulations under the SAVE Act will add more layers of calculating who will get access to credit.
Q: Has Dodd-Frank resulted in a more transparent process?
A: Perhaps Dodd-Frank’s largest impact has been the required change in the mortgage purchase disclosures. Before Dodd-Frank, lenders were required to share the good faith estimate at application, the settlement statement and the truth-in-lending disclosure, all of which worked somewhat independently. The Consumer Financial Protection Bureau is currently conducting a regulatory public request for comment to align those forms to help consumers understand their loan and make better decisions.
Q: How difficult is “green lending?”
A: It isn’t necessarily difficult, but obtaining the necessary resources to rate a home’s energy efficiency – for instance, obtaining the services of an auditor – might be impossible in some locations. Energy efficient mortgages – special loans so that the borrower may take out a larger loan than they would typically qualify for because the utility costs would be presumably lower – require home energy efficiency audits and verifications, though some homeowners wanting financing for energy efficiency upgrades have turned to simpler personal loans, home improvement loans or home equity lines of credit. We like green lending. It’s just that, with all the regulations already coming out of the Dodd-Frank legislation, we are being inundated with regulations.
Q: Are consumers knowledgeable about green homes?
A: An ordinary home buyer asks about the number of bedrooms, baths, the condition of the kitchen and then they get on to the price, local area taxes and maybe utility costs.
Q: Has the Mortgage Bankers Association taken a position on the SAVE Act?
A: The MBA has not taken a position on the Save Act.
By Janis Bowdler
Home ownership could become out of reach for millions of Americans because of a little-known provision of the Dodd-Frank consumer protection bill called the qualified residential mortgage (QRM).
Designed to prevent lenders from making the kind of risky loans that contributed to the 2008 economic collapse, Dodd-Frank required lenders to keep 5 percent of a loan’s risk on their books so they “maintain some skin in the game.” However, banks would be exempt from the 5 percent rule if the loan was deemed to be a “qualified residential mortgage.” Federal regulators are now trying to define what exactly a “qualified residential mortgage” looks like and could possibly include a 20 percent down payment rule as part of the criteria.
This down payment would devastate the ailing housing market and discriminate against millions of home buyers. It prevents qualified buyers from attaining an integral part of the American dream.
Under the proposal, the average Atlanta family would have to save nearly $56,000 to cover a 20 percent down payment and 5 percent closing costs on a median-priced home. Black and Hispanic families make up two-thirds of the Atlanta population. Based on U.S. Census estimates, black and Hispanic families would have to save for 21 and 23 years, respectively, to make up a down payment. Although the metro area’s white families have higher incomes, it would still take them more than a decade (13 years to reach the goal.
How does that help Atlanta’s hard-hit real estate market inch toward recovery? It doesn’t.
A study by the Center for Responsible Lending found that a mandated 20 percent down payment would exclude 60 percent of credit-worthy borrowers and hit minority communities even harder, with up to 75 percent of African-Americans and 70 percent of Latinos unable to qualify. Many agree that the mandate is too severe. Roughly 12,000 (mostly negative) comments were filed by banks, civil rights groups, mortgage companies and members of Congress when regulators originally proposed the 20 percent QRM.
The regulators who are proposing this draconian penalty on potential homeowners are the same regulators who were asleep at the wheel in 2008 and allowed the nation’s housing market to drive off a cliff. Responsible lending standards and the ability of the borrower to repay the loan are better ways of reducing the risk of default. No one should expect the housing market to bounce back until prospective homeowners have access to quality loans.
Home ownership is the foundation of generational wealth and a stepping stone to the middle class. Along with peace of mind, home ownership provides equity to start a new business, pay for education and achieve greater financial security. When you take home ownership away from citizens, they’re less likely to climb the social ladder and achieve part of the American dream.
Janis Bowdler is director of the Wealth-Building Project for the National Council of La Raza.