Shouldn't We Be Talkin' Sustainable, Green Mortgages?

04/15/2009 10:34 am ET | Updated May 25, 2011

Mortgages to help buyers take a bit of extra loan money to make energy efficiency improvements to their homes have been around since the Carter Administration. Yet these "green" mortgages have never really taken off - and aren't even a blip in the over $10 trillion mortgage market, says Sustainable Industries Journal.

We're behind the Brits - a handful of lenders and especially the Ecology Building Society have a range of mortgage discounts to reward and encourage energy efficient housing.

Part of the reason is no single cheerleader has taken the green mortgage idea and run with it. Because home loans are grouped together and re-sold, lenders of an energy-efficient mortgage (EEM) or green mortgage have had to individually underwrite them, making processing tedious.

More recently Fannie Mae and Freddie Mac as well as the Department of Housing and Urban Development and the Department of Veterans affairs offered EEMs, but critics contend most EEMs were not worth the time and hassle. In the last few years, some big lenders such as Bank of America and Citibank have offered $500 to $1,000 off of closing costs for greener homes - not much incentive. Few lenders and real estate agents have taken the time to get to know the range of green mortgage possibilities, and then sell them.

Now that Fannie and Freddie have taken such huge hits, credit is crimped, and the sub-prime market has imploded, there's even less momentum for green mortgages. But they may be exactly what is needed to get the home retrofit market moving.

The possibility for carbon emissions reductions is truly astounding. Around 71% of electricity use in the U.S. is due to buildings, resulting in 38% of our country's greenhouse has emissions. Not only that, but green building practices are now considered a competitive advantage for architects, builders in a slumping economy.

"I am not surprised that green mortgage information is hard to find, " says Tomek Rondio, CEO of Mortgagegreen, a small U.S. real estate financing company trying to put green mortgages at the forefront. "Very unfortunately, few entities are taking this opportunity seriously - to change the mortgage industry and significantly reduce carbon emissions and global warming concerns."

Two things have been missing to make green mortgages mainstream - the first is a standard underwriting system (which has just recently come about and was adopted by the U.S. Conference of Mayors this summer). Second, building up a track record for green mortgages so they can also be rated to make the rating agencies such as Standard & Poor's comfortable with them.

It's one of those annoying chicken-and-egg problems that has hampered a lot of sustainability efforts. As Rondio says, capital markets have resisted green-specific financing until relevant risk-rating and a track record are established. But how to get a track record?

Some creative financiers will eventually see the opportunity in green mortgages.

"Financing energy efficiency is key to reaching current ambitious goals for reducing energy use in our housing stock," says Doris Ikle of CMC Energy Services. "Any mortgage lender would find there is no better long-term investment than in improving the energy efficiency of our homes."

Here's to hoping some of them are out there listening.