Genworth Advises Lenders on Green Mortgage Underwriting
In a video released Nov. 5, Genworth Mortgage Insurance urged mortgage lenders to learn more about appraising and underwriting homes constructed in an environmentally sustainable way.
A branch of Genworth Financial Inc, the firm said greater numbers of constructed homes have been built or retrofitted with green modifications that impact their value and affordability. And, those numbers are expected to rise.
“In 2011, about 17% of residential construction was green homes, according to a National Association of Home Builders study conducted with McGraw Hill Construction. By 2016, green homes are expected to be 29% to 38% of the market by value, possibly reaching about $114 billion of activity,” said Chief Appraiser Adam Johnston.
He added that Genworth MI is studying the green market to better understand what it means to home buyers and the housing industry.
“While not all markets show signs of people paying measurably more for many of the common items we would classify as green, we do see an improvement in recognition of that area,” Johnston said. ”As we gain greater understanding of the green features and benefits that drive value, those and other factors may influence how we underwrite borrowers and value homes.”
Green buildings might have significantly different values and cost profiles compared to neighboring properties, he said. Lenders must determine if higher prices are deserved, or of claims of lower utility costs are more than just marketing claims, he said.
Variables such as lower utility costs could directly impact a borrower’s ability to pay calculation, he noted. A borrower seeking to purchase a home with monthly utility bills of $60 will likely have less trouble making his mortgage payments compared to a home with $250 in monthly utility bills.
Green Building Capitalist, a website devoted to green building and green building technology, reported green homes are growing in popularity among a larger percentage of home buyers.
“A family may find a green home appealing because they want their kids to grow up in a healthy home without allergens and toxins,” the website reported. “Empty-nesters may be attracted to the cheaper utility bills. Environmentalists focus on the sustainability aspect. For most, it is a combination of all of the above.”
Part of the challenge of appraising or underwriting green homes is a lack of specific green home standards. Genworth MI considers things like sustainable construction practices with minimal waste, use of energy and appliances that use water more efficiently and retrofitting homes to add items like energy efficient windows and insulation, Johnston said.
Johnston emphasized that his firm, which works with roughly 300 credit unions and some mortgage CUSOs, is calling on the entire housing finance industry, including loan originators, brokers, securitizers and insurers, to begin to acquaint themselves with green materials and standards.
Genworth is closely following efforts to develop education, standardization, measurement and verification guidelines that ultimately may allow homeowners to reap the benefits of green design in the context of responsible lending, Johnston said.