After a protracted gestation period, Senators Michael Bennet (D-CO) and Johnny Isakson (R-GA) introduced the long-awaited Sensible Accounting to Value Energy (SAVE) Act. If approved, this Act has the potential to transform the way green homes are valued for lending purposes and appraisal by directing the Department of Housing and Urban Development (HUD) to modify underwriting guidelines and appraisal practices.
There are two primary components to the proposed legislation. The first is the Affordability Test, which incorporates expected energy efficiency costs into the debt-to-income qualifying ratio—turning PITI (Principal + Interest + Taxes + Insurance) into PIETI (+ Energy).
The second key component of the SAVE Act is the Loan to Value Adjustment, which incorporates the Net Present Value (NPV) of expected energy savings into the loan-to-value ratio. Both the Affordability Test and Loan-to-Value Adjustment allow homeowners to apply for financing as a part of their traditional mortgage, which could enable them to invest in additional energy improvements.
“The SAVE Act is a bill that has no downsides,” says Mike Collignon, executive director of the Green Builder Coalition, “The associated costs are nominal, and, as far as I can tell, everyone seems to win.”
Homeowners will be able to obtain loan reductions and higher resale values for high-performance homes, encouraging energy improvements, and, ideally, rendering questions about payback periods for basic green upgrades moot.
Builders will have the ability to recoup upfront investments that improve home performance through accurate and consistent appraisals, thereby providing incentive to construct enhanced structures and move away from poor decisions based solely on lowest upfront cost.
After decades of inertness, lenders will be able to accurately project repayment risk, presumably enabling them to finally deliver on their elusive promise for green mortgages.
Utilities will benefit from the reduction of demand on their already overtaxed infrastructure.
And, it is anticipated that a shot in the arm to energy-efficiency investing will result in industry growth and a marked increase in available jobs for professionals and manufacturers alike.
I could continue with the rhetoric, that our nation wins because any reduction in energy demand decreases our dependence on foreign oil and enhances our national security. However, I think it’s the environment that perhaps is the biggest winner in this scenario. For too long, the environment has been conspicuously absent from our collective balance sheet. The SAVE Act sets an important precedent by inserting an environmental factor into the equation in a meaningful way. Let’s be honest, it’s still all about money and risk reduction, but at least it’s a step in the right direction.
There is a long road between the SAVE Act’s introduction and enactment. It’s important that we do not sit idly by and let the Act languish in the bureaucratic morass of contorted Washington politics. Use your voice to create positive sustainable change—contact your Senator today and express your support of the SAVE Act!
Sara is the Co-Founder and CEO of Green Builder Media. An experienced entrepreneur, investor, and sustainability consultant, Sara specializes in developing companies that are simultaneously sustainable and profitable. Sara is a former venture capitalist and has participated in a portion of the life cycle (from funding to exit) of over 20 companies. Sara graduated Cum Laude from Dartmouth College and holds an MBA in entrepreneurship and finance from the University of Colorado.