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Mortgage Lenders Urge FHFA to Adopt Codes for Energy-Efficient Homes

March 29, 2024

Adopting up-to-date energy codes would not only save families thousands in energy costs but also reduce risks for lenders

In a joint effort to enhance long-term housing affordability and reduce financial risk, a group of consumer and mortgage lenders has penned a letter to the Federal Housing Finance Agency (FHFA) expressing support for adopting updated energy codes for newly constructed homes backed by Fannie Mae and Freddie Mac (the Enterprises), which guarantee nearly half of new home mortgages each year. The coalition of lenders, most of which are members of the Global Alliance for Banking on Values, spans states across the nation and includes Amalgamated Bank, Beneficial State Bank, City First, Clearwater Credit Union, Climate First Bank, Credit Human, Housing Assistance Council, Network for Oregon Affordable Housing, New England Federal Credit Union, Spring Bank, Sunrise Banks, and Verity Credit Union.

Studies have shown that homes built to higher energy efficiency standards help people to stay in their homes longer, with lower delinquency rates for loans, and significantly lower default risks.

In their letter, the lenders urged FHFA that “adopting up-to-date energy codes will reduce risk to the Enterprises and mortgage lenders and increase long-term housing affordability by reducing home energy burdens.” Adoption of modern energy codes has been proven to reduce home energy costs, making it easier for households to meet other housing costs such as mortgage payments. This lowers mortgage default risks, which are significant financial risks to the Enterprises and mortgage lenders.

According to HUD and USDA, which have proposed to adopt the same energy codes for new homes financed by their programs, found that the codes would result in an average saving of $14,536 in energy costs over the life of a single-family home and over $5,000 in savings for multifamily units compared to codes from 2009 used by over one-third of the country.

“As leaders in mortgage lending and affordable housing, we implore FHFA to proactively set the standard for energy codes, guaranteeing that the transformative benefits of energy-efficient housing are within reach of every borrower. It’s time to ensure that the benefits of enhanced energy efficiency and resilience are not merely luxuries for a select few, but are built in for individuals across all income levels and communities, especially those historically marginalized and most at risk from energy costs,” said Ivan Frishberg, Chief Sustainability Officer, Amalgamated Bank.

“Adopting updated energy codes is paramount for securing a better future. Families across the entire country deserve access to homes that are affordable to live in and resilient in the face of climate change. Updating energy codes will ensure homeowners and renters for years ahead won’t be stuck paying an arm and a leg for inefficient heating or cooling. It’s a win-win,” said Mark Kresowik, senior policy director at the American Council for an Energy-Efficient Economy (ACEEE).

“Studies show that energy efficient homes are not only more comfortable, affordable, and healthy, but that borrowers are more likely to repay mortgages on efficient homes, sparing themselves, lenders, and taxpayers the trauma of foreclosure. We urge FHFA to act now to embrace updated energy codes to secure this win-win-win,” said Cliff Majersik, Senior Advisor, Institute for Market Transformation (IMT).

Additional Background:

In December 2023, nearly 80 consumer, energy, housing, health, manufacturing, and environmental organizations sent a letter to the FHFA urging it to require that all new single- and multi-family homes with mortgages backed by Fannie Mae and Freddie Mac meet updated energy codes.

Low-income households and households of color are more burdened by higher energy costs that are generally associated with inadequate insulation and air sealing, and outdated heating and cooling equipment, putting them at a higher risk for mortgage default. Currently, 27% of all households struggle to meet their energy costs.

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