Renewable Energy SmartPod

How To Grow The Green Mortgage Market

July 07, 2021 SmartBrief Season 1 Episode 9
Renewable Energy SmartPod
How To Grow The Green Mortgage Market
Chapters
1:52
Green Mortgage Basics
2:41
The 4 Buckets of Eligible Green Home Improvements
5:06
Potential Size of the Green Mortgage Market
6:25
Energy Savings and Jobs, Jobs, Jobs
7:08
Headwinds the Green Mortgage Market Is Facing
9:35
Plugging the Data Gaps
11:07
Capital Markets, Banks and Policies Helping The Green Mortgage Market
13:26
The Role of Major Lenders and the GSEs
14:27
Improving the Marketing of Green Mortgages
16:42
Technical Needs to Expand the Green Mortgage Market
19:27
Help From Policymakers?
21:10
Incentivizing Lenders to Make Green Mortgages a Standard Offering
24:17
3 Big Things Fannie Mae and Freddie Mac Can Do
25:58
How 3 Hypothetical Borrowers Could Benefit From A Green Mortgage
28:36
Expanding Access to Green Mortgage for Low- and Moderate Income Borrowers
30:03
Upcoming Work From RMI on Decarbonizing Buildings
Renewable Energy SmartPod
How To Grow The Green Mortgage Market
Jul 07, 2021 Season 1 Episode 9
SmartBrief

The upfront costs associated with residential renewables and energy efficient technologies often act as a roadblock to deployment in millions of US homes. Greg Hopkins, a Manager within RMI’s Carbon-Free Buildings Program, joins the show to talk about how green mortgages can play help put those expensive home improvements within the reach of millions of homeowners. Just how much potential is there for green mortgages? Well, as Hopkins explains, tweaks to the housing finance system could grow the single-family green mortgage market from $170 million to potentially $2.2 TRILLION.

Oh yeah ... and along the way green mortgages could save homeowners $12 billion, enhance the comfort and resiliency of 8.7 million homes and generate 650,000 jobs.

Resources - RMI report: "Build Back Better Homes - How to Unlock America’s Single-Family Green Mortgage Market."





Infor
Designed for Progress

Show Notes Transcript Chapter Markers

The upfront costs associated with residential renewables and energy efficient technologies often act as a roadblock to deployment in millions of US homes. Greg Hopkins, a Manager within RMI’s Carbon-Free Buildings Program, joins the show to talk about how green mortgages can play help put those expensive home improvements within the reach of millions of homeowners. Just how much potential is there for green mortgages? Well, as Hopkins explains, tweaks to the housing finance system could grow the single-family green mortgage market from $170 million to potentially $2.2 TRILLION.

Oh yeah ... and along the way green mortgages could save homeowners $12 billion, enhance the comfort and resiliency of 8.7 million homes and generate 650,000 jobs.

Resources - RMI report: "Build Back Better Homes - How to Unlock America’s Single-Family Green Mortgage Market."





Infor
Designed for Progress

Sean McMahon  00:09

What's up everyone and welcome to the renewable energy smart pod. I'm your host Sean McMahon, and my guest today is Greg Hopkins from RMI. RMI used to be known as the Rocky Mountain Institute, but they rebranded recently. And Greg is one of the authors of a paper that organization released about how to expand the green mortgage market. 

 

As many of our regular listeners know, I've been teasing this episode with Greg for quite a while. I'm glad to finally share it with you because it's really a part of what you could call a double feature about who is buying all the renewable energy we've been talking about on this show. You see, our last episode with Miranda Ballentine, from the Renewable Energy Buyers Alliance, focused on trends related to how large corporations are making utility scale renewable energy purchases. This conversation with Greg takes us way over to the other end of the spectrum, to explore how green mortgages can be leveraged by people who procure renewables on a much, much smaller scale. I'm talking about individual homeowners. 

 

But before I kick things off with Greg, I just want to say a quick thank you to our sponsor, and for and for his a global leader in industry specific cloud applications to support critical business needs. Infor solutions are tailored to meet the needs of wind and solar generation asset owners. More than 350 utilities organizations rely on informed cloud based e RP solution to ensure their assets in infrastructure are safe, and reliable. Okay, everyone, today I'm joined by Greg Hopkins. Greg is the manager and the carbon free buildings program at RMI. Greg, how you doing today? 

 

Greg Hopkins

Good. How are you, Sean, thanks for having me. 

 

Sean McMahon  

I'm doing great doing great. The reason I brought you in want to bring on the show is that you are one of the authors of a paper that RMI put out recently about the green mortgage market. The title of the paper is “Build Back Better Homes - How to Unlock America's Single Family Green Mortgage Market.” So what I'd like to start with is just walk us through the basics of green mortgages. What are they? Who can get them? Things like that...

 

Greg Hopkins 02:12

Yeah, so green mortgages allow borrowers to finance green Home Improvements like energy and resilience upgrades as part of their mortgage when they're buying or refinancing a home. So our work is focused on existing single family green mortgage products that are offered by Fannie Mae and Freddie Mac, given their reach and influence in the market. And those products are called the homestyle energy and green choice mortgage respectively. They can be used to finance green improvements up to 15% of a home's as completed value.

 

Sean McMahon  02:41

So when we talk about green improvements, what are we talking about?

 

Greg Hopkins 02:44

So yeah, so in terms of like eligible improvements, we're talking really about four buckets. So one is renewables like solar panels or geothermal systems. Another is energy efficiency improvements, like you know, anything from insulation, air sealing, high efficiency, h vac systems, windows, lots of stuff, water efficiency measures as well. The third bucket is resilience improvements. So things like storm surge barriers, foundation retrofitting for earthquakes, hazardous brush and tree removal and fire zones, things like that. And then the last bucket is that they can be used to refinance other pre existing energy related debt. So like residential paste loans, utility program, financing consumer loans. And I think that takeout mechanism is pretty interesting because it can enable the GSEs to play a role in providing liquidity for other green home financing providers in the marketplace and really free up capital for those actors to redeploy.

 

Sean McMahon  03:40

So who's eligible for these loans? Who's applying to get these?

 

Greg Hopkins  03:43

Good question. So Fannie Mae and Freddie Mac are government sponsored enterprises, or GSEs, that have really streamlined the mortgage origination process by setting requirements for homes and borrowers to conform to specific standards that qualify those mortgages for purchase on the secondary market. So these requirements include things like maximum loan sizes, loan to value ratios, borrower credit ratings, and all that means that green mortgages won't be available to all consumers. And there may be better financing products like pay as you save or other on belterra programs that are more accessible, especially to lower income borrowers. Still the GSEs touch an estimated three to 4 million homes a year and do about a trillion dollars of volume and single family mortgage origination. So there's a huge swath of the market that could take advantage of green mortgages once certain processes are improved.

 

Sean McMahon  04:35

Okay, and how did the rates on these mortgages compared to what else is in the marketplace? Is there a couple basis point bump on these or what are we talking about?

 

Greg Hopkins 04:42

So know that the interest rate is actually the same, there's no there's no interest rate increase or premium, it's the same rate as the mortgage would have been otherwise. And eventually, as this market scales up, and is sort of humming, there's the potential to see discounts and interest rates that are that are available to green mortgages. That's that's been the case on the multifamily side. Is that business of the GST is a scaled up over time.

 

Sean McMahon  05:03

And you mentioned as it scales up, so what's the size of this market now?

 

Greg Hopkins 05:07

So the size of the multifamily market is pretty large. So Fannie Mae over the past four years has been the biggest screen bond as your in the world. I think they've done over $90 billion of green mortgage volume on the multifamily side. On the single family side, it's a lot smaller. So it's still sort of early days. Just last year, Fannie Mae kicked off its single family green MBs program for Energy Star certified new construction. So far, I think they've done around $170 million of green bond issuance on that front. But we see there being a ton of potential, you know, a much bigger market potential if they can tap into the existing home retrofit market.

 

Sean McMahon  05:47

And I saw that in the paper. So how large you see this market getting projected out, you know, 5 to 10 years?

 

Greg Hopkins 05:53

Yeah, so we did some math, we think, based on the penetration levels that we've seen on the multifamily side of the business and just for context, over the last four years that Fannie Mae was the biggest green bond issuer as a result of that business. They've seen 30% of their total multifamily mortgage volumes be green. So for green MBs, if even half of that penetration level is achieved on the on the single family side, we could be looking at a $2.2 trillion single family green MBs. Market within a decade. So pretty, pretty massive, and the the implications of that and the benefits that could be delivered by that market, I think a really compelling so we estimate that could mean improving almost 9 million homes, generating net savings to consumers of about $12 billion, creating 650,000 domestic jobs and avoiding almost 60 million metric tons of carbon emissions.

 

Sean McMahon  06:47

So on the jobs front, we're talking about, you know, all the installers, window installers, solar installers, ah, back everything, right.

 

Greg Hopkins 06:53

Yeah, it's a combination of you know, it's based on the dollars that are actually invested into these projects. So all of those sorts of workforce jobs and at the same time, the economic implications, so from the savings that are generated, that could be reinvested into the economy jobs from that as well.

 

Sean McMahon  07:09

All right, now I got to taste them. So I've, I've bought two homes, and I've refight a couple of times. And I've never had any mortgage broker talk to me about green mortgages. So I'm gonna ask you about what the headwinds are to, you know, getting in the way of that growth. But I'm assuming that's one of them. So kind of walking you through just just the hurdles that this market has to overcome to scale to the size you're talking about?

 

Greg Hopkins 07:30

Yeah, I mean, the biggest, the biggest headwind is definitely a lack of awareness. I think that's, that's true on all sides of this equation. So home energy performance, and home energy costs are just not accounted for in the GSEs appraisal standards are underwriting processes. So all parties are really flying blind on this, which is kind of crazy. Because if you look at the roughly 80 million households in America that earn less than $70,000 a year, on average, those households are spending more on energy costs than on property taxes, or insurance. And yet, those latter two expense categories are accounted for. Only a handful of jurisdictions in the US so far require any kind of Home Energy labeling or disclosure policy. So in most of the country, you know, this conversation just isn't happening. And this stuff just isn't on the radar for borrowers or lenders. But we think that advances in housing data and automation can change that pretty quickly and happy to talk more about that later. Another big headwind is just that based on the on the GSEs current guidelines for lenders, single family green mortgages involve some additional process steps for lenders that make make this just a bit more complicated and what's become a very commoditized business. So there require energy reports for larger projects additional as completed appraisals for every project. There's contractors involved, obviously, there's escrows, to manage, and I think that deters lenders, but we believe a lot of that can be streamlined and automated, leveraging existing data and tools that are readily available. And then lastly, as a headwind, I'll just I'll just acknowledge that single family is a it's a tough market segment. So the GSEs green mortgage business has been really successful on the multifamily side, single family is much more fragmented, smaller projects, harder to quality control. But at the same time, it's really critical to address so household energy use accounts for 1/5 of all US carbon emissions. And it's really not decarbonizing at the rate that it needs to because of a lack of information transparency, a lack of market signals and incentives and of course of scalable low cost financing solutions.

 

Sean McMahon  09:36

Okay, one quick question on the data, do new technologies like all these, you know, Google Home and nest and things like that? Do those have a role to play? I mean, they're capturing more data than we were about our home heating and things like that 20 years ago, is that going to plug in until there's some of those data gaps?

 

Greg Hopkins 09:51

I mean, I think the data gaps could be filled by any number of things. And I and really, I mean, what we've proposed in the report is that there's pretty high quality now. standardized data sources like if you look at the Department of Energy's ResDAC database that's actually run and managed by NFL, the National Renewable Energy Laboratory. That's a really good example of something that goes really deep and comprehensive into the housing stock into all the different conditions and construction methods that have been used over time, and is capable of producing pretty home specific energy cost estimates. And so what we're advocating for is something like that, something that sort of nationally standardized high quality from a trusted source like like a Doa, or another agency, that can just fill even if it's one data field, just having home energy cost estimates populated into this process, to give loan officers a mechanism to flag homes that look like they may be more costly to operate or less efficient, and use that information as a way to effectively market their green mortgage products to tell customers, you know, if you're interested, we offer, you know, homestyle energy or green choice as a way that you can actually improve your home and bring in more efficient equipment or envelope improvements and bring those costs down as part of your mortgage.

 

Sean McMahon  11:08

All right, now, we've dissected some of the headwinds, but what are some of the tailwind some what are some of the things going on in the market that might help the green mortgage market scale?

 

Greg Hopkins 11:15

Yeah, there are definitely trends and shifts we're seeing, especially from capital markets, financial institutions, and policymakers. So just to double click on each of those, so in terms of capital markets, seeing ESG demand from investors continue to outpace supply, which results in a modest premium for green and ESG. Investments like green bonds. We think that's partly why Fannie Mae launched their single family green MBs program last year, which was really a great start, but so far is only for Energy Star certified new construction, they've done about $170 million to date, which I mentioned. But the big opportunity really lies in tapping into that existing home retrofit market. In addition to capital markets, financial institutions are starting to make pretty bold climate commitments. So RMI stood up what's called the Center for climate align finance last year, and already financial institutions representing over $18 trillion globally have committed to climate align their portfolios with the goals of the Paris Agreement, so that means they're going to drive greener lending and investment activities in the years ahead. founding partners of that center include a few of the biggest mortgage lenders in the US so players like Wells Fargo, Bank of America, JP Morgan Chase, all three in recent months have publicly announced bold 2030 and 2050 targets that can really change the dynamics and I think, I hope drive top down motivation for lenders to really start engaging and driving single family green mortgage origination. On the policy side, obviously, the Biden administration is really pushing on this front, and announced that the US will cut its emissions in half by 2030, which is huge. This single family green mortgage market can align really well with the Biden administration stated priorities to address climate housing, economic recovery equity, including targets to weatherize and retrofit millions of homes and buildings, we're also seeing a lot of a lot of traction and activity from sub national actors like states and local governments driving climate action on the ground. And at the end of the day, just think the GSEs can play a big role in climate aligning housing, finance, in support of these goals, and as part of the the whole of government approach to addressing the climate crisis.

 

Sean McMahon  13:26

And now, when you mentioned, you know, the big lenders coming in, are we going to get to a point where, you know, we have entire tranches, or multiple tranches of rmbs, just designed strictly for green mortgages. Is that something that's projected out? Are we gonna get there?

 

Greg Hopkins 13:39

I think we're gonna get there. I'm not sure how long it's gonna take. I think if we sort of envisioned the single family market shaping up in the same way that the multifamily market did, you could imagine how the GSEs might develop a green MBs framework for single family that has sort of tiered groupings based on relative energy performance levels, and, you know, different ratings and certification standards that apply to each. Our report takes a stab at proposing what that might look like. And I think importantly, doing that in a way that creates pathways and makes this market accessible to folks that aren't just wealthier borrowers owning higher end homes, but really opens it up to a larger market where anybody can upgrade their home, given the means given green mortgage proceeds, and qualify for the benefits that come with that.

 

Sean McMahon  14:27

What does the messaging look like on that in terms of reaching out to borrowers who who are not already from the affluent areas and wealthy can afford it? Like? I've been talking a lot of folks, and there's just kind of new research coming out that yeah, I mean, just certain segments of the population, just the climate stuff is not really a priority for them. So is there a plan to market these things to them and bring these folks on board and explain how much money they can save?

 

Greg Hopkins 14:49

Yeah, that's a great question. I think savings is a big, big angle there. In terms of marketing the products I definitely don't think climate is probably going to be the factor that resonates with most of the Consumer population. But I think net savings is a pretty powerful concept. And I think there are ways to leverage data to really hone in on quantifying what that looks like. And then I think another big angle that's increasingly important is health. So there's a lot of new research coming out, including a report that just came out yesterday from Harvard that show a lot of the implications between burning fossil fuels inside of homes and buildings and the really adverse effects that can have on our health and indoor air quality. And in addition to health, I think comfort is a big angle here as well. So a lot of homes across the country. You know, our housing stock is aging. As we see more extreme weather more frequently, I think it will start mattering more how much insulation homes have and you know how effective their envelopes are at keeping occupants inside, comfortable and at safe temperatures. And so all of this I think can be leveraged to market financing products that can improve those outcomes for borrowers in real life. We'll be right back. In for is a

 

Sean McMahon  16:03

global leader in industry specific cloud applications to support critical business needs. The Infor vision is led by crafting unique user experiences to support the business starting from project development and planning through to digital tools for O and M. With solutions tailored for Powergen and TMD enterprises, Infor is able to deliver speedy and reliable results, such as a 400% improvement in O and M productivity 20% extension and equipment life expectancy and millions of dollars of savings through controlling lifecycle costs of assets. And now, back to my conversation about growing the green mortgage market with Greg Hopkins from RMI. Okay, now shifting to some of the technical mortgage backed security market needs like where do you see that going? Or what kind of missing pieces need to be filled in? So like I said, so all those big lenders can can put all those pledges, they've made hundreds of billions of dollars and deploy that kind of capital in the single family space? What needs to happen?

 

Greg Hopkins 17:00

Yeah, in terms of technical MBS market needs, the loan level data. It's really not being collected on on this front yet. So the short answer is there's not a ton of activity or progress on that, I think it's pretty easy to imagine how data could be aggregated across different home performance rating and green certification programs so that we can pretty easily automate the identification of properties to make all this easier for lenders and the GSEs themselves. I think another big piece is establishing that framework that I talked about that includes existing homes, not just new construction, and does so in a way that makes this accessible to a broader swath of the consumer population. But, john, I know your background is in securitization. So curious if you have other ideas or thoughts on how that might look?

 

Sean McMahon  17:47

Yeah, I mean, I think that the data point is the key. You know, that was kind of asking like, I mean, I know it sounds weird to ask about Google and things like that. But when you think of all the data that hedge funds, collect on random things, use drones to pull data on parking lots and farms. Like, I think that while while the standardized data field wouldn't pull something from like a Google or something like that, certain investors certainly would, you know, and they'd be looking at, you know, targeting homes that way. But I think from a structural perspective, it You're right, once it just gets a little bit of momentum behind it. I think you said, What, 185 million so far. Yeah, that numbers got to grow. And then once things get kind of standardized out from there, it'll, it'll be fine. But I think that the right players are in the space. Get programs like this on the tip of the tongue is that people like, you know, jamie diamond and pretty amazing. From that guy's lips to the markets, ears and keyboards, things move pretty quickly. So yeah, I mean, that's kind of where I see it going, just making it a the industry can make make it happen once there's little bit momentum. So a great, I know a lot of folks that are also looking for stuff like that are stuff like this, I should say, just because you know, sustainable investing, and green investing is so huge right now, we talked about it, I mean, the supply of investment products can't keep up with demand. And so I think we'd probably see, I wouldn't be surprised the next couple years, we see some kind of my experimental the wrong word, but brand new products in terms of how loans are structured, or how portfolios or structured portfolios are structured, I should say, there's a lot of money to be deployed in this market. And so I think that creativity will be the key to getting there. And that's my long answer. Sorry about that. Okay, so shifting back to what can be done to propel this market, we talked about what lenders and GSE could do is anything policymakers can do I know that by administrations come up with a lot of proposals and, and a lot of big, big dollar figures. But what can be done at the congressional level are done at the regulatory level or even state level. Oftentimes, we see states you know, what California does on solar rooftops the country follows like, is this something where particular states can lead the way?

 

Greg Hopkins 19:52

I mean, I do think it's possible I think the the faster route is through regulatory action at a federal level, especially so far. Fannie Mae and Freddie Mac are regulated by the Federal Housing Finance Agency, the FHFA. And as I mentioned before, I think it's the The time has come for the GSEs. And I think the gsds, green mortgage products to be viewed as a tool within the whole of government approach to addressing the climate crisis. So, you know, just as an example, I think the FHFA for, for example, could require that the GSEs incorporate Home Energy data, and home climate risk data, which I think is maybe more on their radar at the moment into their standards and underwriting processes and make sure that data is disclosed to borrowers. Not only that to jumpstart the green mortgage market, but also, you know, zooming out at an aggregated level to start assessing, disclosing and reducing the GSE, portfolios, emissions and climate risk exposure. So green mortgages from that perspective can really be a tool for both mitigation and adaptation, given that they're financing home energy and home resilience improvements. I think another angle here, potentially, that might involve Congress, to an extent is this idea of positioning mortgages to become a primary vehicle for financing home energy and resilience improvements. So the Do you want fries with that approach? I think government could put some funding into more meaningful incentives for lenders. Right now the GSC are offering $500 per green mortgage loan originated, I think that number could be a lot more compelling. And by just like back of the envelope math, we're thinking, you know, $15 billion for lender incentives could hit 5 million homes over five years, there could be additional funding amounts for subsidies to lni households, in particular, there's a lot of low to moderate income households for subsidizing the cost of Home Energy assessments and retrofits that could touch a couple million homes over five years at something like a $20 billion figure. So this combination of getting the data requirements in place and incorporating it into normal course business processes, to increase awareness and visibility in combination with more compelling financial incentives for lenders could really unlock this market in a bigger way. And make sure that green mortgages are sort of positioned as like a standard offering, like a built in opt out option, and all new and refinance mortgages.

 

Sean McMahon  22:15

Yeah, that's what I'm talking about earlier, like, I never really came across my menu when I was, you know, looking at all the options available to me, and they got all kinds of, you know, arms and, you know, 30, year 20 year, but nothing, nothing on the green side. So, getting back to your comments about climate and kind of keeping just people comfortable in their homes and safe even at that point. Are there regions of the country? Or is the country that can be targeted with just for that reason, because they get so hot or so cold? I mean, I want to bring up Texas, but that's been talked about a lot in this industry. And since February, but you know, these arctic blast come through and power ever goes out and you know, Minneapolis, Chicago, wherever people are gonna die, you know, so Are any of the lenders just targeting areas specifically? For that reason, weather reasons, we'll call it.

 

Greg Hopkins 22:57

I don't think that's happening yet, at least to my knowledge, I do you think there's a lot of potential to leverage data that already exists to target these proceeds in a more productive way. So I think that's one example, like we thought about this concept. And actually FHFA just recently put out a request for input about the GSEs, climate risk exposure and how they can start to manage that. And I think a lot of responses are going to talk about data and how to how to start capturing home level climate risk data, not only to inform the GSEs overall portfolio wide risk exposure, but also to inform consumers, I think that's another blind spot that parallels energy consumption in a lot of ways. And you could see how lenders and the GSEs, in general could start leveraging Home Energy data on one hand and home climate risk data on the other to start offering green mortgages as a tool to improve both sides of that equation. In terms of regional variation, I definitely think it's possible I think the climate risk data could be broken down into, you know, at a more granular level, to provide some clarity on what types of resilience improvements might be more useful in specific parts of the country. And at the same time, I think that could inform energy efficiency improvements as well, if you view you know, things like envelope improvements, insulation, air sealing, also as resilience measures in a way, what can the GSE do to help grow this market? Yeah, so the GSEs can do a lot, obviously, I think they have a lot of control over the standards and requirements that they're setting for lenders and appraisers nationwide. And when it comes to green mortgage products, in particular, the recommendations that we frame up in the report, there's three big interventions. So one, as I mentioned, is to leverage Home Energy data, so that lenders have a tool to actually initiate these conversations with borrowers for the first time and target these proceeds. Eligible measures lists can be another pretty effective intervention where lenders at the moment are having to verify the cost effectiveness of energy technologies. And that's really not their expertise. So they're currently having Do some manual side calculations that can be confusing and add complexity that also can be streamlined through data that exists in tools like rez doc or state utility programs can be leveraged for that function. And then what? real quick? Yes?

 

Sean McMahon  25:15

What was the name of that list? Again? What are those lists called? eligible measures lists. So what does that

 

Greg Hopkins 25:22

so they would be curated, pre qualified, reliably cost effective energy efficiency technologies, and those could vary by state or by region, but getting pretty granular.

 

Sean McMahon  25:34

So we're talking windows and things like that, or what?

 

Greg Hopkins 25:37

Yeah, like in certain parts of the country, I think, you know, heat pump water heaters might be more economical than in other parts. And I think, yeah, there's a lot of data that's been collected so far, not, you know, by other actors that are working on the ground in this space that could be leveraged to inform the marketing process for green mortgages and the types of improvements that they could most cost effectively finance.

 

Sean McMahon  25:58

And one thing we're going to do with the Show Notes for this episode is we're going to link to the blog post or the report at RMI. Because one of the things I found that I thought was really helpful was the three hypothetical borrowers. So kind of towards the end of the report, you guys did a great job of laying out different scenarios for potential borrowers. Can you walk me through the three of those?

 

Greg Hopkins 26:16

Yeah, so I think our goal with those was just to give an idea of what this could look like, in practice when this markets up and running. So I'll give a few hypothetical examples. I think it could look like a young couple buying their first home, a townhome, let's say they find one that's certified to do E's Zero Energy Ready home standard, but they're not sure if they can afford it. The loan officer tells them that the energy savings compared to a standard new home can be considered funds available to be spent on their mortgage payments, and that the home certification because it's high performance qualifies them for a discounted interest rate. So those savings combined, let's say they amount to $100 a month would be enough to allow them to afford that new home. And their mortgage then gets bundled as part of a top tier green MBs pool. As another example, it could look like an elderly woman who decides to sell her home to move closer to her grandkids. A few years prior to that she had added insulation to her 1950s home and replaced the furnace with a heat pump. She did that using cash savings as 80% of consumers do. Through her utilities, you got a Home Energy Score Report that rated her home and eight out of 10. And so when the next buyer came and went under contract, their loan officer confirmed that the home is a high performance home would qualify for green MBs. That buyer received preferential mortgage terms and paid a slightly higher price for the home, which allowed that grandmother to more than recoup or investment in those upgrades, because the appraised value took into account a high performance and the Home Energy Score. And lastly, it could look like a middle income family buying a move up house that needs some work. So their loan officer, let's say flagged that home that the home might have higher utility bills and asked if they're interested in financing green improvements. By that point, let's say they knew that the house they were buying had an old inefficient water heater was missing. crawlspace insulation had almost no insulation in the attic. So they're able to finance a new heat pump water heater and new insulation is part of their mortgage. And they worked with a contractor to install both projects within six months after closing. And they felt better knowing that they created a more comfortable environment for their kids. I think all these examples are just you know, they're hypothetical, but I think they do, in a way bring to life, how the housing finance market could evolve in the years ahead when when we need it most to.

 

Sean McMahon  28:30

Alright, are there any other high level points you want to make about the report or about the future of the green mortgage market?

 

Greg Hopkins 28:36

Yeah, I think one thing I didn't touch on, and I think it's a good thing to know is that the the GSE is are required by the regulator, the FHFA. And this came out of the last housing crisis to expand access to affordable housing finance for low and moderate income households through what's called the duty to serve program, which started back in 2018. So both GSEs develops specific action plans to better serve underserved markets, those plans included initially green mortgage targets. And actually they submitted to FHFA their plans for the next three year period, which is 2022 to 24. And those will be open to public comment later on this summer, likely in July. So we're hoping to see much more ambitious goals and activities on this front in terms of scaling up single family green mortgage targets and plans to increase access to underserved market segments. And I think that that stakeholder engagement process is super important duty to serve as a really valuable program. It's a great thing that we've we've tried to stay involved in since the beginning and comment on and just would put out as a broader call to action that folks, you know, it's publicly available information. Green mortgages, we think are an important piece, but there's lots of other really valuable important activities in there that will be open for public comment in July and just to, you know, just to generally encourage folks to check that out and weigh in, where they feel comfortable.

 

Sean McMahon  30:00

Okay, we'll link to that as well in the show notes. Well, what else are you and the team at RMI working on? What's coming up? Yes, but a lot of times this report, but what can we look forward to seeing from your crew next?

 

Greg Hopkins 30:09

Yeah, I mean, our team now is staffed up to almost 60 folks working on decarbonizing buildings in different ways. So we're doing a lot of work right now launching what's called the advanced building construction collaborative. Which if that sounds interesting to folks would encourage them to check it out online. We do a lot of work on the electrification front, so supporting pretty ambitious local governments and other actors to drive electrification policies in different ways. And yeah, I mean, there's lots of other pretty exciting market based initiatives that the team is is advancing, and it definitely feels like now is probably the busiest we've ever been so excited for excited for what's ahead.

 

Sean McMahon  30:48

Great. Well, I'm excited to see further reports and further information coming out of your team. So thank you very much for your time. I really appreciate it. 

 

Greg Hopkins

Thanks for having me, Sean. It's been great. 

 

Sean McMahon

Okay, everyone. Now it's time for the pod brief segment of the show. And I quickly want to touch on two things. The first is a follow up to the conversation Greg and I just had about green mortgages. Green mortgages are not the perfect tool for everyone. Because as Greg mentioned, they really only help people who are looking to buy or refinance a home. That means green mortgages can't help the people who don't have the credit needed to qualify for them. But still, green mortgages are crucial, because as much as people don't like to admit it, right now, spending money on things like rooftop solar heat pumps, or energy efficient windows is really only something that rich people do. At least that's the perception and a lot of areas, the United States, expanding the green mortgage market with those kinds of things within reach of people who otherwise couldn't afford them. That's important, not only for energy and renewables markets, but also for the reputation and adoption of renewables. If a much, much wider swath of society is able to deploy renewables in their homes, that just might shift the senseless political debate in which renewables have been ensnared all across the US. 

 

The second thing I want to touch on is the recent heat dome that cooked parts of the western United States. As luck would have it, my travels during that time took me to three cities that were setting temperature records, Las Vegas, Portland, and Seattle. When I saw temps in those cities, we're going to climb to 114 115 116. I thought for sure we'd see major power outages. But we didn't. Aside from Avista’s struggles in the Spokane area, utilities across the west manage the extreme heat extremely well. Now, I know we have a long hot summer ahead of us. And I don't want to jinx anything. But we don't often give credit to utilities for the crises they avoid. So in this case, I think we should offer up some kudos to the various utilities for keeping the lights and the air conditioning on. 

 

That's it for today's show. Once again, I'd like to thank our sponsor: Infor.

 

And if you like this podcast, please share it with your friends and colleagues. And be sure to follow us on Apple, Google, Spotify, or wherever you get your podcasts. You can also follow us on Twitter, or our handle is @RenewablesPod. And if you'd like a daily dose of renewable news delivered to your inbox, head to SmartBrief.com and sign up for the Renewable Energy SmartBrief. The Renewable Energy SmartPod is a production of SmartBrief, a Future company.

Green Mortgage Basics
The 4 Buckets of Eligible Green Home Improvements
Potential Size of the Green Mortgage Market
Energy Savings and Jobs, Jobs, Jobs
Headwinds the Green Mortgage Market Is Facing
Plugging the Data Gaps
Capital Markets, Banks and Policies Helping The Green Mortgage Market
The Role of Major Lenders and the GSEs
Improving the Marketing of Green Mortgages
Technical Needs to Expand the Green Mortgage Market
Help From Policymakers?
Incentivizing Lenders to Make Green Mortgages a Standard Offering
3 Big Things Fannie Mae and Freddie Mac Can Do
How 3 Hypothetical Borrowers Could Benefit From A Green Mortgage
Expanding Access to Green Mortgage for Low- and Moderate Income Borrowers
Upcoming Work From RMI on Decarbonizing Buildings