The Federal National Mortgage Association this week began beefing up its efforts to sell builders, Realtors and financial institutions on the idea of establishing more relaxed lending qualifications for those who retrofit existing houses for energy efficiency or buy new homes with such features.
Fannie Mae, as the private secondary market lender is known, announced that it is offering lenders simplified guidelines under which such home buyers could obtain larger loans than they otherwise could.
The new guidelines apply to all single-family loan programs run by Fannie Mae. Eventually, the effort might be expanded to multifamily loans, explained Richard R. Betchley, Fannie Mae's senior vice president for marketing and product management.
Betchley made the announcement at a Capitol Hill press conference Tuesday with Sen. John Heinz (R-Pa.), chairman of the Alliance to Save Energy group, to draw attention to Energy Awareness Week and the beginning of the heating season this month.
The reasoning behind the program is that savings on energy made possible by an efficient home will enable people to afford a larger mortgage. The combination of a bigger mortgage on an energy-efficient home and lower energy bills would be less of a burden than a smaller mortgage and higher energy bills, Fannie Mae said.
Under the guidelines, Fannie Mae is raising its lending ratio by two points if the home includes specific conservation features. This means that the maximum acceptable percentage of a home buyer's income that could go toward housing expenses -- principal, interest, taxes, mortgage insurance and home insurance -- is up from Fannie Mae's current upper limit of between 25 and 28 percent to between 27 and 30 percent.
Similarly, the acceptable ratio of total obligations -- including both housing expenses and other outstanding loans such as for cars -- to gross income is up two points from the present range of between 33 and 36 percent to between 35 and 38 percent.
In practical terms, this means that a family with an annual income of $35,000 could become eligible for a mortgage of about $64,000 if the home were judged energy efficient. If not, the maximum loan likely to be approved would be only about $59,000.
In this example, this means that the homeowner getting a loan at a 15 percent interest rate would be considered able to pay about $810 per month, rather than only $747, for principal and interest.
In general, and depending upon income and the prevailing market rate, Fannie Mae said, the limit on monthly payments would be allowed to rise roughly $50, with the expectation that this would come from reduced energy bills.
The average loan size will rise 8 to 9 percent, increasing the number of people eligible for loans and allowing more people to move into better homes, Fannie Mae said.
The more liberal guidelines would apply if an appraiser determined that a new or existing house would have a low energy use, based on a set of guidelines from Fannie Mae. A new house meeting the National Association of Home Builders' thermal performance guideline automatically would qualify for the relaxed rules.
Fannie Mae actually began its version of this program last year, but confusion over its initial admittedly cumbersome rules convinced the corporation to revise its guideline information and streamline the process.
Lenders received a new program announcement in September, and builders and Realtors began receiving the new explanation this week. In addition, Fannie Mae has begun sending new consumer brochures to lenders outlining the program.
Other financial groups have given special consideration to energy conservation. A survey last spring by Owens Corning Fiberglas Corp. showed that a majority of lenders are willing to weigh the energy efficiency of a home in considering a loan application.
In the program announcement to its 4,000 participating lenders, Fannie Mae explained that the lender's appraisal would include an evaluation of the energy-efficient characteristics and an overall rating of the dwelling's energy efficiency, using Part I of the Federal Home Loan Mortgage Corp.'s (Freddie Mac's) form 70A, "Energy Addendum-Residential Appraisal Report." For an appraisal to show a "high" efficiency rating, necessary for the two-percentage-point break, a home generally would have to have features from each of three categories:
* Insulation and infiltration. The houses would tend to have adequate insulation in ceilings or attic floors over living spaces and around slabs, sills, heating and cooling ducts, the water heater or pipes running through attics and crawl spaces.
They would have air infiltration barriers, such as caulking or weatherstripping, around windows and doors and, generally, between any two different building materials.
Houses that are to be declared high in efficiency also should control energy losses from fireplaces, flue dampers, exhaust fans and other wall and roof penetrations.
* Windows and doors. The houses should have double- or triple-pane windows or storm windows and storm doors or insulated doors.
* Heating and cooling systems. These houses would have new, efficient heating and cooling systems or modifications to old systems, the guidelines said. They could have such new systems as high-efficiency oil or gas furnaces with annual fuel utilization efficiency (AFUE) ratings of 80 percent or higher; high-efficiency heat pumps with seasonal energy efficiency ratio (SEER) measures of 9.0 or greater and a heating seasonal performance factor (HSPF) of 7.0 or greater; or air conditioners with SEER ratings of 9.0 or greater.
They also could have such modifications as flame-retention oil burners; vent dampers for oil and gas furnaces; pilotless ignitions for gas furnaces; a modulating aquastat for forced hot water boilers; and a secondary condensing heat exchanger for gas and oil furnaces.
Other options include zoned heating and/or air conditioning -- controlling different "zones," or areas, in a home -- and clock set-back thermostats. Solar equipment, such as hot water heaters or space heaters, or passive solar design elements and earth-sheltered walls and roofs also could qualify a home.
Betchley advises borrowers interested in the program to ask their financial institutions if they are Fannie Mae-approved lenders, and to have the lenders explain how to qualify under the guidelines for a bigger home loan. Free copies of the energy conservation home financing plan brochure are available from Fannie Mae Energy Conservation, Box 2335, Baltimore, Md., 21203.