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Financing Energy Efficiency: An EEM Handbook


Federal D. James Croft
Home Loan Executive Vice President
Mortgage Risk and Property Management

July 21, 1989 

Subject: Energy-efficient mortgage program and revised energy addendum

To: All Freddie Mac Sellers and Servicers

Due to the recent renewed interest in energy-efficient housing, we want to direct your attention to our energy-efficient mortgage (EEM) program for home and second mortgages. We believe our program is the model of EEM programs for the secondary market. It has been designed to give credit to your borrowers for the energy conservation improvements made to their properties by allowing them to use the savings in their utility costs to offset higher mortgage payments.

As a part of our recent review of our EEM program, we improved our Form 70A, Energy Addendum, which you may use when underwriting energy-efficient properties. This form was revised with the help of energy industry experts to be more user friendly and to allow greater participation in our EEM program. Fannie Mae has also adopted this revised version (6/89) for use with its EEM program. 

Please familiarize yourself with our revised Form 70A by reviewing the highlights below and reacquaint yourself with our entire EEM program by reviewing our policies as summarized in the attached exhibit A.

Revised energy addendum

The instructions throughout Form A have been improved to give helpful examples and to incorporate the following key changes:

  • discounting the limit on the value of the contribution made by the energy-saving items: (The form previously indicated a limit of 5 percent of the value of the subject property.) Now, your underwriter has more flexibility but must continue to exercise prudent judgment in determining whether the energy-efficient items represent an over improvement to the property based on the appraisal. (Funds set aside to complete retrofit improvements, however, are still limited to 10 percent of the mortgage amount.) 
  • allowing either an energy consultant or an appraiser to complete part 1 of the form: (Formerly, an appraiser was required to complete the entire form. Note, however, that only an appraiser may complete part 2.) An energy consultant may be a qualified representative of the local utility, the builder, the lender, a heating and cooling contracting firm, or a private home energy efficiency consultant. 
  • clarifying that a "high" energy efficiency rating is required to justify the additional consideration we allow in the credit underwriting process. 
The instructions also indicate more clearly when to use each of Form 70A's two parts:
  • Part 1 is used to rate the energy efficiency of a property and provides an estimate of the dollar amount of expected monthly energy savings. 
  • Part 2 is used to estimate the value of the energy-efficient improvements when adequate comparable market data are not available. 
We encourage you to use the revised Form 70A (6/89) immediately. Use of this version of Form 70A will be required after August 31, 1989. Enclosed with this letter are two camera-ready copies for your convenience in printing your own supply.

Although our EEM program was developed to enable you to assist your borrowers in qualifying for a higher mortgage amount, your underwriters must continue to consider all relevant factors, including a borrower's credit worthiness. If you have any questions about our revised energy addendum or our EEM program, please call you Freddie Mac regional office.


D. James Croft
Executive Vice President
Risk and Property Management 

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