" ...lower risks associated with energy efficiency should be taken into consideration when underwriting mortgage loans"
Green builders in Santa Fe have long claimed energy efficient homes are hard for real estate appraisers to measure because there aren’t enough “comps” to compare and because homeowners are less likely to sell or default on their mortgages. Now there may be proof to what we have long suspected.
On March 19, 2013, the Home Energy Efficiency and Mortgage Risks study was released by the University of North Carolina and the Institute for Market Transformation. The study found the risk of mortgage default is one-third lower for Energy Star homes rated by certified RESNET HERS Raters. The study also found lower HERS Index Scores meant lower risks.
The new report is the first academic study to assess linkages between residential energy efficiency and mortgage risks. It used a sample of 71,000 mortgage loans from 38 states and the District of Columbia, using CoreLogic’s mortgage database. The sample was restricted to single-family, owner-occupied homes whose mortgages were originated during 2002 – 2012. RESNET provided the addresses and the hers Index scores to the University of North Carolina for the analysis.
The report concludes the lower risks associated with energy efficiency should be taken into consideration when underwriting mortgage loans. It recommends that Fannie Mae, Freddie Mac, and FHA encourage underwriting flexibility for mortgages on energy efficient homes. Congress should consider the report’s findings in its deliberations on legislation to add energy costs to mortgage under- writing standards used by federal mortgage agencies, as expressed in the saVe act being considered in the U.S. Senate.
RESNET Executive Director Steve Baden commented on the results of the study, “This is a real game changer. The finding that the lower the HERS score, the lower the mortgage risk should increase consumer, builder, lender, real estate agent and appraiser confidence in the HERS Index Score. In light of these findings RESNET calls on the mortgage industry to rationalize the underwriting process to take in consideration energy savings in the mortgage loan.”
To download the reports go to http://www. imt.org/resources/detail/home-energy-efficiency- and-mortgage-risks-executive-summary