The FHA Energy Efficient Mortgage Program

An Energy Efficient Mortgage (EEM) is a mortgage that rewards you for building or renovating a home with energy efficient features. EEMs allow borrowers to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans. This allows them to qualify for a larger loan amount and a better, more energy-efficient home. Never heard of it? I am not surprised.

Its been a pretty well kept secret, but its not new. It started off as an FHA limited pilot program. Its success caused Congress to enact the national Energy Efficient Mortgage Program in 1995.

Participation in the program has been growing steadily as word gets out and the emphasis on energy efficiency continues to build.

The backbone of the EEM program is the idea that a reduction in a homeowner’s utility costs — by enacting changes that maximize energy efficiency — allows a homeowner to pay a higher mortgage to cover the costs of the energy improvements as well as the mortgage itself.

The FHA offers insurance for these specialized mortgages for a homeowner to buy or refinance a home and incorporate the cost of energy-efficient improvements. As the homeowner, you don’t have to qualify for the extra funds and no down payment is required.

EEMs offer homeowners who otherwise might not be able to afford it a chance to revamp their homes, save costs by adopting energy-efficient practices and help cut down on pollution. Yet, they’re still relatively foreign to most homeowners.

“Although EEMs have been available in some states since 1980, they have been little understood or marketed,” according to HUD. “With EEMs, borrowers do not need to get a separate, costly loan for energy improvements when buying an existing home.”

Here’s an overview of the requirements homeowners need to be considered eligible for an Energy Efficient Mortgage:

The borrower is eligible for maximum FHA-backed loan, using standard underwriting procedures. The borrower must make a 3-percent cash investment in the property based on the sales price. Closing costs are not included in the 3- percent calculation but may be used to satisfy the requirement. Any upfront mortgage insurance premium can be financed as part of the mortgage.

Eligible properties are one- to four-unit current and new construction.

The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the greater of 5 percent of the property’s value (not to exceed $8,000), or $4,000.

To be eligible for inclusion in this mortgage, the energy-efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.

The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report conducted by a home energy rating system or energy consultant. The cost of the energy rating may be financed as part of the cost-effective energy package.

The energy improvements are installed after the loan closes.

The maximum mortgage amount for a single-family unit depends on its location and it is adjusted annually.

There are three basic types of EEMs, so determining which one is best suited for your needs may require the help of an expert. Along with the FHA-backed loans for energy efficiency, the Veterans Administration also backs EEMs for qualified military personnel, reservists and veterans.

The  mortgages are becoming more known and more popular as homeowners continue to look for meaningful ways to address rising fuel and energy costs. Take some time to evaluate your budget and whether the long-term cost savings associated with energy efficiency is something that’s right for you and your family.

To take advantage of these great energy efficient mortgage programs, talk to your mortgage broker today!

Information for this post comes from The federal government’s Energy Star Program.

Bail Out Fact Fit To Boil Your Blood.

Quick Infuriating Fact to Consider:

The $85 billion that the U.S. government has spent bailing out Fannie Mae and Freddie Mac would be enough to purchase nearly 500,000 homes at the U.S. median price.

Thanks to Skip Foley of Concierge Realty Partners, LLC for passing this along from the 2010 National Association of Realtors Conference.

Revamped Obama Mortgage Relief Program to be Floated Soon.

(Updates with more details and context about Hope for Homeowners) By Jessica Holzer Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–The revamped Hope for Homeowners program is likely to be rolled out soon without an adequate solution to a major problem: How to extinguish second mortgages for borrowers facing foreclosure. As a result, the program, which so far has helped only 95 borrowers refinance into government-backed mortgages, could continue to struggle to gain traction, despite several key improvements.

The Department of Housing and Urban Development has been in talks for months with large national banks and their regulators on the size of payments necessary to induce the banks to relinquish the second liens. But the negotiations have reached an impasse, with banks insisting on a higher level of compensation than the government is willing to pay, people familiar with the discussions say. Separately, the problem of second liens is also bedeviling the administration’s efforts to encourage loan modifications and short sales. The deadlock could overshadow several improvements HUD is making to Hope for Homeowners, which is the only federal effort geared toward homeowners who are deeply underwater on their mortgages. More than 16 million homeowners were upside down on their mortgages at the end of the second quarter of 2009, representing nearly one-third of all homeowners with a first mortgage, according to Moody’s Economy.com.

Lenders must agree to extinguish a second mortgage before borrowers can refinance their first mortgage under the program. As many as half of seriously delinquent borrowers have a second mortgage, such as a home equity or down payment loan, according to analyst estimates. “We appreciate the fact that there will be some second lien holders that won’t go for this,” a senior HUD official told Dow Jones Newswires. “And the program isn’t for everyone. But it will serve a substantial niche [of borrowers].” The program may work for borrowers who don’t have a second mortgage, as well as those who are so underwater that the second-lien holder has little hope of recovering anything, the HUD official said. The Obama administration inherited Hope for Homeowners, which was conceived by congressional Democrats and enacted last year as part of sprawling housing legislation.

Administration officials have worked to iron out kinks in the program, but the bulk of their efforts has gone to ensuring the success of their own initiative – a program to provide millions of homeowners with government loan modifications. HUD will soon roll out a retooled version of Hope for Homeowners intended to bring the incentives more in line with those provided under the loan modification program. Payments for extinguishing second mortgages may even be more generous than under the loan modification. HUD officials are also making sure Hope for Homeowners loans can be packaged and sold into the secondary market so that the program’s rates are comparable with general mortgage rates. However, the cooperation of mortgage servicers, who are gatekeepers to the administration’s foreclosure prevention programs, will be crucial. Servicers, already swamped by queries from strapped borrowers, must have the patience to pursue a refinance under Hope for Homeowners, which requires far more work than a loan modification under the Obama program.

The largest servicers – JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Bank of America (BAC) – are also the largest holders of second mortgages, giving rise to concerns they may not act in borrowers’ best interest. Banks may be reluctant to extinguish second mortgages if it means they will be required to immediately write off the mortgage. Mortgage investors – many of whom are intensely interested in Hope for Homeowners and favor it over the government loan modification program – are deeply skeptical that servicers will play along. Laurie Goodman, a senior managing director of Amherst Securities Group, called the second-line problem “intractable” in a recent research note to clients. She believes Hope for Homeowners won’t be used extensively for loans that have been packaged and sold into private-label securities. However, just 36% of all non-performing mortgages in private label securities had second liens taken out with the first, she noted. A JPMorgan spokeswoman declined to comment. Spokesmen for Wells Fargo and Bank of America didn’t return calls requesting comment.

If Hope for Homeowners flops a second time, deeply underwater borrowers who qualify can always get their interest rates cut temporarily, to as low as 2%, through the government’s loan modification program. But over the long term, these people will have difficulty refinancing or selling their home, Andrew Jakabovics, associate director for housing and economics at the Center for American Progress, said. “You may end up with a lot more people trapped in their mortgages,” he said. Under Hope for Homeowners, qualified borrowers can refinance into a new, government-backed loan that matches the current value of their home, as long as the investor in the prior mortgage agrees to write off a portion of the debt. By contrast, people familiar with the program say servicers typically aren’t forgiving loan principal as part of the government loan modification effort. Glenn Boyd, head of U.S. Asset-Backed Securitization Research for Barclays Capital, said mortgage servicers will ultimately need to agree to substantial principal forgiveness in order to bring down default rates. “Simply having your mortgage rate reduced won’t be sufficient for many of these borrowers who are significantly underwater,” he said.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com