Mortgage lending takes an environmental turn

The average home produces more air pollution than the average car. The average family spends $1,400 a year on energy bills, and half of that amount goes toward heating and cooling costs. If one in 10 U.S. households used heating and cooling systems approved by ENERGY STAR, the U.S. Environmental Protection Agency’s energy-efficiency standard-setting program, more than 17-billion pounds of pollution would be removed from the air.

E-Star Colorado is trying to make it easier for prospective homebuyers to embrace energy-efficiency. The nonprofit, statewide residential-housing and energy-efficiency program has entered the home-mortgage market. Loans are available to purchase energy-efficient homes or to remodel existing homes to create energy efficiency. “Our mortgages encourage people to save energy by primarily focusing on their living space, heating, cooling, hot water and lighting systems,” said Perry Rosensweig, senior program officer for E-Star Colorado. “There are an array of mortgages in every size, shape and flavor. We can slice it and dice it any way you want.”

E-Star Colorado was created in 1995 as part of the Colorado Office of Energy Management and Conservation. The program’s focus is a home-energy rating system, which provides homeowners, builders and others with the expertise to determine and improve a home’s energy efficiency. Builders and homeowners receive training about energy efficiency through E-Star seminars and educational programs conducted throughout the state. Builders, who are a part of the E-Star Builder Program, use their ratings to maintain certifications and market quality home-building materials.

Rosensweig said that as far as he knows, the energy efficiency-based mortgage program is the first of its kind in the country.

The products offered through E-Star include energy-efficient discount mortgages and energy-efficient mortgages. The discount mortgages offer discounts of up to $450 on loan origination fees for the purchase or refinance of any home that has an E-Star energy rating. The higher the rating, which is based on a scale of zero to 100 and one to five stars, the greater the discount.

Through the energy-efficient mortgages, borrowers can include energy savings as part of the total value of a home, and monthly savings equal more income, which allows the borrower to qualify for a larger mortgage.

“If a family qualifies for $195, 000 on a $200,000-home, the home’s current energy rating or the borrower’s commitment to increase its energy efficiency adds value to the qualifying amount,” Rosensweig said.

Rosensweig’s home was rated at 76 points when he bought it, and, through home improvements, he increased the rating to 83 points. If he sells the home for $200,000 and the buyers qualify for only $195,000, E-Star will raise the qualifying-bar based on the increased energy-efficiency rating.

E-Star also allows consumers to apply for both types of mortgages in a single package, which means buyers can qualify for larger loans and receive discounts on origination fees.

“Our goal,” Rosensweig said, “is to transform the mortgage industry with the hope that other lenders will follow suit. We want to spur the builders on and get everyone interested in energy efficiency, which means consumers will have more money in their pockets and be more comfortable in their homes. And it all benefits the environment.”

Ken Matthews, owner of Woodland Park, Colo.-based Building Alternatives, Inc., is E-Star and ENERGY STAR certified and is a member of Built Green.

Matthews has been designing, marketing and supplying energy-efficient home-building material packages for 19 years. He offers 16 home designs that incorporate structurally insulated panels, which, he said, are 50 to 60 percent more energy efficient than the 2-by-6 wood studs used in stick-built homes.

He also uses thermo-pane windows and Styrofoam insulation to increase the home’s efficiency rating. Two of the energy-efficient homes in Woodland Park were featured in the August 2003 Parade of Homes.

Matthews said that most builders do not believe consumers are environmentally conscientious when it comes to home buying despite surveys that indicate otherwise.

“We have to be responsible for the place in which we live, and surveys show the customer will pay more for energy-efficient homes,” he said.

Matthews said he believes consumers flock to the E-Star mortgage programs once the word spreads. E-Star is an independent third party that brings credibility, through builder certification, to the consumer who is purchasing an energy-efficient home, he said.

Alternative homes, such as underground Earthships that are built using tires and aluminum cans, are environmentally correct, but mortgage lenders have yet to embrace the concept. “I have no doubt Earthships work, and I encourage people to go forward if they can, but the way to impact the industry is to encourage mainstream builders to use environmentally sensitive materials,” said Matthews.

E-Star mortgage specialist Russ Pygott was asked to research lending options for non-traditional homes like Earthships. He came up short. “Rarely do the mortgage lenders have the ability to come up with comparables to these homes when they are trying to assign value,” Pygott said. “E-Star is stuck with the same rules and regulations as the rest of the banks, but I do think we should address the issue at some point.”