Houtan Hormozian is vice president of Crestico Inc. He is an
accomplished mortgage veteran in both wholesale and retail
operations and currently serves as the president of the North
Los Angeles Chapter of the California Association of Mortgage Professionals. Hormozian coaches his team to complete
tasks in the short term while mentoring them in the long
term in personal and professional development. Reach him
Build Better Neighborhoods
One Green Loan at a Time
Energy-efficient financing can do good for you and the community
By Houtan Hormozian
Historically, technology has drastically changed the backdrop in which business is done. During the industrial revolution, for instance, new technologies brought
about efficiency in manufacturing and mechanical
More recently, technology is changing the way
houses are built — making them, in many cases, more
energy efficient. That has led to changes in how loans
are originated for these homes.
In recent years, lenders have created energy-efficient mortgage programs. These can be sought
through government-insured or conventional loan
programs. Mortgage originators aiming to expand
their business should not only be aware of energy-efficiency programs, but also highly familiar with
them, and understand the rules, products and programs available in each state where they work.
Generally, there are two types of energy-efficient
financing — one for the purchase of an existing energy-efficient home (referred to as an energy-efficient mortgage), and the second is a home-improvement loan
(often referred to as an energy-efficient loan.)
The first type of loan has many of the same characteristics and considerations as a standard loan. The
loan application, underwriting and review process
is the same, although the programs may vary. In this
type of loan, like a standard loan, the subject property
is considered the collateral for the loan.
There is a subcategory of mortgages offered by
the Federal Housing Administration (FHA) called FHA
Energy Efficient Mortgages. Originators should explore
the details of these mortgages on the FHA website.
These loans were established to help families reduce
the cost of their utility expenses, ultimately making
homes more affordable. There are maximum amounts
that can be added to an FHA loan under these types
of programs. An FHA-approved lender can access an
energy-efficient mortgage calculator to determine
the dollar maximum that can be financed for energy
The second type of loan, the energy-efficient loan, is
offered to pay for home improvements on an existing
property and upgrade it to an efficient status, thereby
increasing the value and quality of the home. Energy-efficient loans for home improvements are considered unsecured and do not use the subject property
as collateral for the loan. Rather, they are tied to the
borrower in the same way a line of credit would be.
This is a great marketing tool. Mortgage originators should launch marketing campaigns to appeal to
homeowners in an existing area that could be eligible
for these types of improvement loans. This type of
campaign will show the mortgage originator’s expertise and knowledge, but also expand his or her outreach into the community.
Increasing the home value
There are a few general requirements that must be
met before a property and a borrower would be considered eligible to receive the benefits of an energy-efficient mortgage. Initially, the property must be
reviewed and analyzed (often called an audit) by a
qualified home energy assessor to make a determination regarding the current energy-efficiency status
of the property.
The factors that are considered in this determination include things like: Are the windows double
paned? Do the windows hold in and keep out the
appropriate heat or cold? Is the heating and cooling
system modern or outdated? What’s the annual energy
use and costs associated with the home? Often, these
final determinations include suggestions or recommendations that can be acted on to remedy any nonefficient findings.
A step to be taken to assist a borrower in demonstrating eligibility for an energy-efficient loan is to prepare a report that shows the current status of the home
and the potential future status after improvements. If a
house has outdated single-pane windows, for example, the report could present an analysis of the reduced
energy costs as a result of replacing the windows,
which should clearly show that the windows will end
up paying for themselves through cost savings.
A borrower may question the use of financing to
perform energy upgrades to their home. The best re-
sponse to such a concern is to redirect the borrower’s
attention to the fact that loans for this purpose are
no different than loans used to improve the property
in other ways, such as adding an additional story, extra
bathrooms or building an outdoor kitchen. Basically, the
use of financing can be appropriate for any improve-
ment that increases the value of the home.
The factors to be considered in determining which
type of energy-efficiency loan should be presented to
a potential borrower are similar to the factors considered when a mortgage originator is choosing a program
or product to offer to a client. Essentially, the credit-worthiness of the borrower and his or her ability to
repay the loan are the prime considerations. Also, it
is important that a mortgage originator be aware of
other financing options that are available to borrowers in terms of energy efficiency.
n n n
Energy-efficient financing can be a great avenue to
explore for a mortgage originator attempting to
employ a new marketing strategy in an older neighborhood in need of revitalization. Not only will such
financing improve the homes and lives of people but
also will serve to make better neighborhoods and
communities overall. n