Green Money: Energy-Efficient Mortgages and Green Investing

Green mortgages

“I’ve been looking into a green building project and heard about green mortgages. Can you tell me more?”
Seattle, Washington

Mortgage lenders originate residential financing against real property; this debt is then sold to organizations such as Fannie Mae and Freddie Mac, which in turn sell these “mortgage-backed securities” as rated investment vehicles to insurance companies, pension funds, and other institutional investors. If the real estate is a certified green building, the mortgage attached is a “green mortgage-backed security” and is inherently more secure and attractive. The hard part has been standardizing the guidelines and methods that govern the marketplace for such products. Building, zoning, and contractual standards are being created as the green building industry expands.

Fannie Mae’s Energy Efficient Mortgage (EEM) is available through lenders such as Countrywide Mortgage and brokers with wholesale access to Countrywide programs. Consumers purchasing energy-efficient homes must obtain a Home Energy Rating System report (HERS), the standard measurement of residential home efficiency. The home receives a rating between 1 and 100 for such factors as window efficiency, heating and cooling efficiency, wall-to-window ratios, insulation, solar orientation, and local climate and utility costs. The HERS report suggests improvements, estimating savings and total cost. The cost of the energy improvements can be included in the mortgage, although they cannot exceed 15 percent of the home’s value. The estimated energy savings can be added to a home’s total net worth if they exceed the costs of installation. If the benefits do not exceed the costs, the building won’t qualify for EEM.

When complete, a HERS rating is compared to a control home without energy-efficient measures. The savings over the building’s life is taken into account as extra income when qualifying the borrower. Eligible borrowers can obtain a Fannie Mae EEM with only a 3 percent down payment. My Community Mortgage, also from Fannie Mae, is directed toward low- to moderate-income borrowers. Its an important program that offers low-income families the benefit of an environmentally efficient home with less of a down payment requirement than that of the EEM program–$500 or 1 percent of the transaction, whichever is less. There are no income limits for these borrowers, but property must be located in designated census tracts or inner cities.

Joe Morant, a full-service mortgage professional in Marin County, California, contributed to this answer. Morant specializes in efficiency financing for residential and commercial clients.

Conscientious investing

“The chasm between rich and poor is growing wider, both in the United States and across the globe. I can’t give away all my money, but it would be great if some of my savings could be used to help someone start a little business and escape poverty. As long as I could earn a little bit of interest I’d be thrilled. Are there any investment funds that do this?”
Portland, Maine

In our interconnected world, none of us are truly secure while desperate poverty afflicts billions of people. Fortunately, this awareness is growing, and many organizations are working on the frontlines to alleviate poverty. Investors who want to participate in this vital cause frequently turn to Community Development Loan Funds. Most community loan funds are small by banking standards; the capital they gather from investors is pooled into a revolving loan fund from which they make small loans to their clients. More than 300 such funds, most of which operate in specific geographic areas, exist in the United States. Loan funds pick up where banks leave off, providing loans to individuals and organizations that cannot qualify for bank loans. Often they lend money at below-market rates. Likewise, they bring their investors into the spirit of cooperation and usually pay less than market rates for funds loaned to them.

For investors with a global perspective, “microcredit” banking provides exciting opportunities. The most famous example is the Grameen Bank of Bangladesh, which helped start the microcredit movement in the mid-1970s. Today, on every continent, millions of investment dollars are flowing into vegetable stalls, mini-grocery stores, shoe repair stands, and other businesses conceived and nurtured by the world’s poorest entrepreneurs. With small loans, business training, and peer support, micro-entrepreneurs can create personal and economic success for themselves, their children, and their communities. With affordable credit have come savings opportunities, development of leadership skills (especially among women), and many other social benefits. Children tend to stay in school longer, while communities report more balanced gender roles, individual empowerment, and restored hope.

There are many great resources to help you find community investments; a good place to begin is To make it simple for investors, the Calvert Foundation, has created Calvert Community Investment Notes, the first registered security that allows investors to put their resources in a pooled investment of community loan funds. This portfolio encompasses microcredit, affordable housing, small business and community development lenders across the country and around the world, with more than 150 organizations represented. The investor chooses the amount ($1,000 minimum), the term (one, three, or five years) and the interest rate (0-3 percent). Investors can choose to allocate their investments to loan funds in a specific region,or worldwide; larger investors may allocate their monies to specific programs.

Hal Brill and Cliff Feigenbaum are co-authors of Investing with Your Values: Making Money and Making a Difference (New Society, 2000). Brill is president of Natural Investment Services, a Registered Investment Adviser in Paonia, Colorado. Feigenbaum is publisher of the award-winningGreenMoney Journal, a socially responsible consumer publication. Green Money is a registered trademark of GreenMoney Journal/Cliff Feigenbaum. Used with permission. This material is for informational purposes only. It is not a solicitation to invest.