Fannie and Freddie Going Green?

The biggest news of this week is by far the government takeover of Fannie Mae and Freddie Mac, which places the two mortgage giants in government conservatorship. Together the two own or guarantee about $5 trillion in home loans, about half the nation’s total, and have lost $14 billion in the last year. They are likely to pile up billions more in losses until the housing market begins to recover.

The primary goal of what is the largest ever financial rescue by the U.S. Government is to restore confidence and stabilize the housing industry. However, congress should embrace a secondary opportunity in this shake-up: attacking the current energy crisis by refocusing Fannie and Freddie to embrace energy efficient mortgages.

Brent Blackwelder and James Henry wrote about the need for Freddie and Fannie to go green in an article published in the Nation in late July. “The goal must be to shift from underwriting energy-guzzling McMansions to a green lending strategy that protects us from energy inflation and the impacts of rapid climate change… Over time, Fannie Mae and Freddie Mac should reward mortgage lenders who finance homes that meet two basic sustainability tests: green building design and “sustainable locations,” sites for new homes that take into account commuting costs and other costs associated with housing locations.”

FAS wrote about the importance of Energy Efficient Mortgages (EEMs) and Energy Improvement Mortgages (EIMs) earlier this summer as well. The two mortgage programs qualify borrowers for more expensive but energy efficient homes, or allow them to roll the cost of energy audits into mortgages without additional credit assessments. Ideally, lower utility bills would offset higher mortgage payments and save mortgagees money while raising his or her standard of living.  In addition, by restructuring the priorities of Fannie and Freddie to wholly embrace this approach, the energy impacts of the built environment can be reduced.

More information about green mortgages can be found here and here. FAS’s analysis of the EEM program and its recommendations for its expanded implementation can be found here.

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