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E=MC² For Mortgage Underwriting?

by Chicago Agent

What would Einstein do? Energy costs may become a factor in the underwriting process, if legislation proposed by the Senate goes into law.

A new Senate bill introduced Wednesday hopes to add another factor in the underwriting process in the form of energy costs, according to a new report from Housing Wire’s Jon Prior.

Introduced by Senators Michael Bennet (D-Col.) and Johnny Isakson (R-Ga.), the “Sensible Accounting to Value Energy Act” (SAVE Act) would require Fannie Mae, Freddie Mac and the Federal Housing Administration to consider electronic and gas payments when determining a borrower’s capability in paying a monthly mortgage.

Bennet and Isakson said their bill works from a mathematical standpoint. Homeowners already spend, on average, more than $2,000 a year on energy costs, which is more than taxes or insurance; with that in mind, the legislation would enable borrowers to finance energy upgrades as a part of their 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,” according to a statement from the senators’ office.

Philip Henderson, a senior financial policy specialist at the Natural Resources Defense Council and member of the Appraisal Institute, said he supports the measure, considering it would allow Fannie and Freddie to automate energy cost estimations.

“The bill aims to have Fannie and Freddie do with energy expenses what they do with property taxes and insurance,” Henderson said. “They already do this. The question is why aren’t they doing it with energy expenses?”

Not everyone, though, is praising the bill. Tim Cornelison, a lender with United Community Bank in Blairsville, Ga., sees it as hardly sensible, if not downright ignorant.

“The idea that utility costs are not factored into the decision process on a mortgage is a misconception, and comparing energy costs to taxes and insurance is insane,” Cornelison said. “If you own a home, you must pay taxes; and if you have a mortgage, insurance coverage is required and specified by the lender. Energy consumption varies greatly from household to household in identical residences.”

“Energy conservation is important but enforcement through underwriting is impossible,” Cornelison continued. “An underwriter’s job is to assess risk, and they are not trained to measure energy efficiency. Local governments should establish and enforce conservation regulations through building standards and energy codes that are appropriate for their communities.”

Yet the SAVE Act is acquiring some powerful advocates. In addition to Henderson, Ross Eisenberg, the counsel on environment and energy at the U.S. Chamber of Commerce, is supporting the measure, and the American Council for an Energy Efficient-Economy, in collaboration with the Institute for Market Transformation, just released analysis claiming that the SAVE Act would create 83,000 jobs and $1.1 billion in consumer energy bill savings in 2020.

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Comments

  • Dianne Whitmire says:

    This is totally over the top and ridiculous. Tim makes very good points. Based on the stringency currently in obtaining a mortgage, there is allowances in the debt to income ratio for these added costs of homeownership.

  • matt miller says:

    Lenders are required to disclose borrowing costs within 10% in 3 business days. How is this possible? The property would need an inspection and one has no way of knowing if the borrower is comfortable at 65 or 75 degrees. Just what we need. More goverment regulations.

  • Brandon says:

    I’m a mortgage underwriter and this is just stupid. Government has no clue about business.

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