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Energy-efficient mortgages

By Kay Bell · Bankrate.com
Tuesday, August 16, 2011
Posted: 10 am ET

Hot enough for you? If not, come on down to Texas, where we're on pace to have our hottest summer on record.

The only people enjoying this weather are air-conditioning repair firms and utility company billing offices. Meanwhile, we sweltering residents just push the thermostats up as high as we can bear. It's a choice between sweating most of the month or sweating even more on the day the electric bill arrives.

Some homeowners have taken advantage of federal legislation that provides a tax credit for energy-efficient residential improvements. These can help lower cooling costs and save a few tax dollars at filing time. The only problem is that this year, the maximum credit for the most common energy upgrades is only a third of what it was in 2010, unless you go for a more expensive solar, geothermal or wind system.

As Congress struggles to come up with money to reduce the deficit, it's unlikely that generous energy saving tax breaks will return. But some folks are considering a different approach. They want to tie residential energy costs to home mortgages.

The Sensible Accounting to Value Energy, or SAVE, Act would require federal loan agencies to assess the expected energy costs for mortgage loan applicants. This can be accomplished, save the proposal's advocates, through modest adjustments to underwriting guidelines and appraisal practices.

The evaluation of energy costs makes sense, says the Institute for Market Transformation, a green building and energy-efficiency nonprofit which is heading the SAVE effort, since homeowners spend more each year on energy than on property taxes and homeowners insurance. If homeowners spent less on energy, they would have more money to make mortgage payments and to maintain and repair their homes. That would make them better loan risks, increase home affordability and reduce the chances of mortgage default.

Energy-efficient mortgages, or EEMs, already exist and are sponsored by federally insured mortgage programs such as theĀ Federal Housing Adminstration and Veterans Affairs and the conventional secondary mortgage market (Fannie Mae and Freddie Mac).

So why SAVE?

Part of the reason is that Capitol Hill likes to recycle things that already exist instead of making what's in place work better. A less cynical perspective is that the new program would be more effective because it would incorporate efficiency standards directly into the mortgage process.

Under SAVE, mortgage underwriting practices would consider how much an energy-efficient home could knock off of utility bills each year. Such evaluations would be no different from the current loan appraisal methods. If a $5,000 upgrade for granite countertops is reflected in a home's value, so would a $5,000 upgrade for a highly-efficient HVAC system and its potential energy savings.

The SAVE Act has not been officially introduced in either the House or Senate, but it is gaining support from lawmakers, as well as business, real estate and building industry groups.

And as the housing sector continues to search for anything that could help it recover, connecting energy savings and tax-deductible (for now) mortgage loans might get a closer look.

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