The Bottom Line on the New Energy Economy
Getting Loans to Work
How to Get Bankers to Fund Green Buildings
                                                       photo: boltron
by Craig Severance

A "comprehensive" Energy and Climate bill discussion draft was released by House Energy and Commerce Chair Henry Waxman (D-CA) and Energy and Environment Subcommittee Chair Ed Markey (D-MA) Tuesday.  The full bill draft is here and a summary is here.

The Bill is still very weak on how buildings will really be brought up to a higher efficiency standard, because the money is really not there.  Most of the goals set in this Energy and Climate Bill depend on you and me and the neighbor down the street finding the money to build better (but more expensive) new buildings, and to spend money to retrofit our existing homes and businesses.  Almost half of the energy consumed in this country is from buildings.

The Stimulus Package passed earlier this year provided funds for retrofitting government buildings and low-income housing.  Beyond that, however, "its my house, and I have to fix it."  (There's not enough Federal money -- even with wild Deficit Spending -- to even think of the government paying for all this. Nor should it.)

The Waxman/Markey Bill takes a stab at providing Federal funding for some nice grants to states for "building labeling" programs and some demonstration projects. (Just wait a few years for all that to roll out.)  It promotes innovative "property tax" or "utility bill" financing of building energy improvements -- those will be real popular in the Berkeleys and Boulders of America.  

There is no mention in the Bill of how Americans actually buy buildings and fund building improvements. 
We use mortgages!  We have to go to bankers for those mortgages, and if we ask for too much money, we don't get the mortgage. 

This is why builders are afraid of (and will fight!) the new "model" building codes that would require more energy-efficient (but more costly up-front) houses and commercial buildings.  If bank lending processes remain the same, a more expensive building means fewer buyers can qualify -- and fewer buyers translates into lower prices, and an inability for a builder to recoup the extra up-front costs for a more energy efficient building. 

This is also why most homeowners have yet to ask their banker for a "Home Energy Makeover" refinancing package.  If it is time to refinance to build a new kitchen, what will your banker say if you also ask for funds for a Home Energy Makeover?  What do you do if the banker says you have to choose between the kitchen remodel, or the energy improvements?  

Sure, the energy saving upgrades for either a new home or a refinancing will pay for themselves.  They typically save more than the extra loan payments needed to fund them.  Is my banker required to include that fact in qualifying me for the loan?  There are some  "Green Loans" out there that do this, but these are now more of a "boutique" lending product and are not normal lending practice

Blasting the Bankers.  Every few days, we hear another Congressman or Senator  "blast the bankers" for failing to push out loan funds to jump start the economy.  All are feeling the frustration that hundreds of billions of taxpayer funds have already been spent with seemingly little effect.  The Economy is clearly in crisis, and every practical idea to free up funds for stimulus needs to be considered.

Global Climate Crisis.  While Wall Street fiddles, the world is "burning"* with accelerating global warming.  (Perhaps "burning" is actually not allegorical, when one considers drought-impacted places like Australia.)  President Obama and Congress have rightly declared global warming to be an emergency requiring action this year.  

Top-down efforts such as contained in the Waxman/Markey bill -- lots of aid funneled through state agencies, and requirements on utility companies -- are not going to get me or my neighbor to rework our houses for energy savings and install solar, etc.

Our bankers have to be brought into the equation, with a win/win/win solution:  the Federal government should fix the rules for mortgage qualifications to require that an energy bill assessment be included in all mortgage qualification decisions:

  • Good for Builders and New Home Buyers. If the mortgage qualification process were required to consider projected energy bills based upon how the house is actually built, an energy-efficient home that saves more on utility bills per month than the extra loan payments to fund it, would be easier, not harder to qualify for, since the TOTAL housing costs would be lower than the less efficient house.
  • Good for Bankers.  A "snapshot" of energy bills at today's costs will not last, and future high energy costs for an inefficient building will drain funds borrowers need to make mortgage payments.  A loan on a more efficient home will be better protected from this credit risk.  Also, since banks with a good-credit-risk borrower usually would like to lend more money to such a customer, adding energy efficiency improvements to the loan can help banks do more lending  without increasing overall costs on the borrower.
  • Good for Existing Borrowers.  This works great for the typical homeowner.   If you go to your banker for a kitchen remodel refinance, and the banker comes back and offers you funds for both the kitchen remodel and an Energy Makeover and says the energy improvements actually improve your credit outlook, what would you do?
  • Good for the Economy.  The types of jobs to do these energy saving measures are local, labor intensive, and use a lot of products made in America.  PLUS -- we get some money flowing from the banks into the economy, in every community in the nation.
  • Good for the Earth.  If mortgage funding is more readily available, maybe people will pay attention to all the state agency and utility energy conservation programs promoted in the Waxman/Markey Bill

Nuts & Bolts:  The basic requirement (repeat,requirement) would be to include an actual assessment of projected energy bills (rather than plugging in standard amounts that don't take into account the way the building is designed) into the Total Housing Costs borrower qualification formulas.  This might be accomplished by revising the standard Uniform Loan Application Forms, and adopting regulations for lenders to use the new more specific information.   For refinancings, a borrower would be required to use projected energy bills after the Energy Makeover. 

There are many ways the energy bill estimates could be accomplished. Standard measures could be published by the Energy Department, without doing an individual building assessment.   For more individual assessments, energy rating services are already available for newer buildings, and energy audits are now becoming much more available for existing homes, often funded by utilities. 

An "Energy Appraisal" could become a standard service just like Value Appraisals and Home Inspection Services.  Chickens and Eggs can resolve -- consider the history of home inspection services, which originally were few & far between but now are standard practice. 

If the economic and global climate crises are truly serious, we need to take decisive and effective actions, not just fund state agency grants and demonstration projects.  We need bankers to loan money, and funding energy efficiency and green jobs is a great place to start.

This Article was originally posted on April 1, 2009.

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