Bipartisan Bill Introduced to Account for Energy Costs in Mortgage Underwriting

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U.S. Senators Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.) introduced a bipartisan bill that would enable better mortgage underwriting, reflect the value of energy performance in the appraisal, encourage investments in energy efficient homebuilding and create more than 80,000 construction jobs.

Under the Sensible Accounting to Value Energy Act, federal mortgage loan agencies would consider a homeowner’s expected energy costs when determining the homeowner’s ability to make monthly mortgage payments.

There are two main elements of the proposed legislation. The first is the recognition of the energy as an housing cost. This would change the current PITI (Principal, Interest, Taxes and Insurance) into PIETI (Principal, Interest, Taxes, Insurance plus Energy). This means that with every dollar the home saves in energy it would increase the buyer’s ability to afford the efficient home by the same amount.

The second main element of the SAVE Act is the Loan to Value Adjustment, which incorporates the Net Present Value of expected energy savings into the home’s appraisal.

Both elements will allow homeowners to invest in improved energy performance and finance it through the traditional mortgage.

According to the legislation’s sponsors, the average homeowner spends more than $2,000 each year on energy costs — more than on either real estate taxes or homeowners insurance, both of which are regularly accounted for in mortgage underwriting. On average, these energy costs amount to more than $60,000 over the life of a 30-year mortgage. The SAVE Act would address this blind spot, giving a more complete picture of the costs of homeownership and borrowers’ capacity to service debt.

Under the SAVE Act, lenders would account for expected energy costs along with other recurring payments in the debt-to-income qualifying ratios, which test the borrower’s ability to afford regular monthly mortgage payments. According to a new study from The American Council for an Energy-Efficient Economy, the SAVE act is predicted to create 83,000 new jobs in construction, renovation and manufacturing by 2020.

“It is rare to have such diverse interests come together, and that’s because this is a common-sense bill,” said Bennet. “The Save Act would help provide access to useful information about energy usage that home owners, buyers, appraisers and underwriters want and need. It would lead to more complete and accurate mortgage underwriting, would encourage investments in home energy improvements, create more than 80,000 jobs and lighten the load for Colorado families’ budgets.”

“As someone who has 30 years of experience in the resident real estate industry and who has lived through multiple recessions, I understand that recovery in the housing market and job creation in the construction sector is pivotal to getting our economy back on track,” said Isakson. “I place my support behind this bill because it has the potential to create jobs without any cost to taxpayers and it will also improve mortgage underwriting in this country by including energy as a factor in the process.”

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