Freddie Mac has specific policies to promote the use and installation of energy-efficient improvements in the properties securing the home and second mortgages it purchases. These policies are detailed in the Sellers' and Servicers' Guide and involve:
(a) Defining purchase price or value when retrofitting existing properties with energy-efficient items. Section 1306, "Energy Conservation and Rehabs," outlines our policies on how to include the value of anticipated energy-efficient items in a property's purchase price or appraised value and how to manage funds for incomplete retrofits. (This section also applies to non energy-related issues such as rehabilitation, renovation, and refurbishing older housing.)
If the energy improvements are to be included in the mortgage amount, the total purchase price is considered the sales price of the property plus the actual cost of the anticipated energy improvements. The loan-to-value (LTV) ratio is still calculated based on the lower of this total purchase price or the appraised value (including the energy items).
|To include energy items in mortgage
calculate total purchase price as follows:
price of +
|Actual cost of
|total purchase price|
|LTV ratio is based on lessor of||or|
(including energy items)
If the energy improvements are to be included in the mortgage amount, the estimate of market value for the property must include the energy-efficient items, whether existing or being retrofit to the property. The appraiser must analyze the sales comparables to determine if they have energy-efficient items comparable to the subject property. The energy-efficient items of each comparable sale should be identified. An adjustment must be made to reflect the market-perceived differences between the subject property and each of the comparables.
The appraisal report (Form 70, 72, or 465) must include, in the market estimate, the energy improvements as if completed. If the market area lacks sufficient data to develop an estimated value including the energy improvements, part 2 of Form 70A, Energy Addendum, should be used to value them. The appraiser should insert the value of the energy-efficient items in the subject column of the "sales Comparison Analysis" on Form 70 or "Market Data Analysis" on Form 72 or 465.
The following additional requirements apply to a mortgage secured by a property having an incomplete energy retrofit:
Section 2214, "Energy-Efficient Properties," defines these properties as follows: An energy-efficient property uses cost-effective design, materials, equipment, and site orientation to conserve nonrenewable fuels. Implicit in this definition are proper design and installation of materials and equipment consistent with the climate in the area. (This definition could also include the use of alternative equipment to generate or supplement an individual property's power needs, such as a windmill or solar panel that generates electricity.)
Items normally considered when evaluating the energy efficiency of a home include:
A rating of "high" energy efficiency is required to justify additional consideration in the credit underwriting process. Energy efficiency ratings may be established by completing on e of the following documents:
In the normal underwriting process, the seller should consider the impact of utility charges have on the borrower's ability to meet the monthly housing expense and properly maintain the property. We allow higher qualifying ratios on energy-efficient properties because generally these properties achieve reductions in utility expenses and allow the homeowner to devote a higher percentage of income to the housing expense. The increase in housing expense should not exceed the total estimated monthly savings of the energy-efficient items shown on part 1 of Form 70A or on the HERS report. If higher ratios are used, the Seller must document in the mortgage file calculation and sources used to justify the ratios.