Bipartisan Bill Introduced in the U.S. Senate to Account for Energy Costs in Mortgage Underwriting

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 (SAVE) 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. This has been a structural reform advocated by RESNET since 2006 (see RESNET Policy on Energy Efficient Mortgages)
The second main element of the SAVE Act is the Loan to Value Adjustment, which incorporates the Net Present Value (NPV) 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.
The proposed legislation would recognize home energy ratings for calculating the energy savings for the mortgage loan.
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.”
The bill has support from a broad coalition of real estate, business, building trade and conservation groups, including RESNET, Leading Builders of America, Appraisal Institute, U.S. Green Building Council, National Association of Manufacturers, International Code Council, U.S. Chamber of Commerce, ASHRAE, Efficiency First, Alliance to Save Energy, American Council for an Energy-Efficient Economy, American Gas Association, American Public Gas Association, Natural Resources Defense Council, and National Association of State Energy Officials.
“The SAVE Act creates private sector jobs while making our homes more energy efficient,” said Ross Eisenberg, Environment and Energy Counsel at the U.S. Chamber of Commerce. “And by accomplishing these goals without the need for major federal spending, the SAVE Act will spur job growth in the private sector without adding to the federal deficit. That is a win-win for the business community, and is the kind of realistic, commonsense policy everyone should want to get behind.”
“This bill is a win for homeowners, the economy, and a cleaner environment. The legislation would empower homeowners and lenders with better information about energy bills so they can make more informed decisions. This proposal would enable increased investment in the energy efficiency of homes, leading to lower energy bills. At the same time, it also would help create jobs and reduce toxic pollution from wasted energy,” said Philip Henderson, senior financial policy specialist, Natural Resources Defense Council.
“We strongly support this legislation because it will improve mortgage underwriting performed by federal mortgage agencies by ensuring that energy costs are included in the process,” said Appraisal Institute President Joseph C. Magdziarz, MAI, SRA. “It would require use of qualified, competent appraisers and would help ensure that appraisers have access to data needed to analyze the effects of energy-efficient home improvements in the marketplace. Consumers would benefit from the bill’s efforts to help ensure they receive a reliable, credible opinion of value.”
“With this act in place, we believe it is possible to substantially increase the energy efficiency of new homes over the next decade while retaining affordability for our customers. This truly is a win-win opportunity for our customers, the economy and our environment,” said Ken Gear, executive director of Leading Builders of America, Inc.

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