On Behalf of HUD and FHA Welcome to our session on Energy Efficient Mortgage (EEM)

1. On Behalf of HUD and FHA Welcome to our session on Energy Efficient Mortgage (EEM)

2. Housekeeping Phone lines ~ Q&A ~ Polling Activities • Phone lines – muted • Questions – chat panel • Interactivity – voting tools and polling questions 2

3. Your Instructor Judy Nash-Ellis 3

4. FHA Subject Matter Expert Welcome to our guest from the FHA – Patricia McBarron - who will be responding to questions and offering additional guidance during today’s webinar.

5. Polling Question What job responsibility types do we have on our webinar today?

6. Remember… • Our goal is for you to have the best experience possible. • If you need anything during the session, just ask. Let’s Get Started…

7. The FHA Energy Efficient Mortgage (EEM) Program Single Family Housing

8. Course Overview • Background Information on HUD/FHA • What is EEM? • Key Components of the EEM Program: • HERS Energy Report • Energy Package • Cost-Effective Improvements • Maximum Amount that can be Financed for Energy Improvements • FHA Calculator • Qualifying Ratios • Case Sample • EEM Resources

9. HUD’s Mission • Create affordable homes for all. • Work to strengthen the housing market. • Bolster the economy and protect the consumer. • Improve quality of life for all, free from discrimination. Source: http://www.hud.gov/offices/adm/about/admguide/history.cfm

10. What is FHA? • Administers a mortgage insurance program. • Protects lenders from loss in event of default. • Establishes minimum requirements for credit and property. • FHA does not use taxpayer funds. Source: http://portal.hud.gov/hudportal/HUD

11. HUD/FHA Programs • 203(b) • Purchase, Refinance (rate/term and cash out) • 203(h) • 203(k) and 203(k) Streamline • 255 • Home Equity Conversion Mortgage (HECM) • Section 513 of the Housing and Community Development Act • Energy Efficient Mortgage

12. What is an EEM? • Energy Efficient Mortgage. • Make the home more energy efficient. • Reduce energy costs. • Amortize costs over the life of the mortgage loan. Source: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/eemhome

13. Perceived EEM Barriers • Lenders: EEMs cannot be sold in secondary market. • Real Estate Agents/Lenders: EEMs significantly add more time to closing. • Quality raters are easy to find.

14. Why EEM Now? • Major trends today driving need: • Income changes over the years (US Census). • Employment changes. • Why lenders choose to offer.

15. % Household Income Flat

16. Unemployment High

17. Any Questions?

18. Key Components of the EEM Program • HERS Energy Report. • Energy Package. • Cost-Effective Improvements. • Maximum amount that can be financed for energy improvements.

19. HERS Energy Report • Home Energy Rating Systems (HERS) Report. • Based on a home energy audit conducted by a qualified rater. • How to find a HERS rater: • RESNET: http://www.resnet.us/ • State and Local Government web pages • http://www.energy.ca.gov/HERS/providers.html

20. What is the Energy Package? • Cost effective EE improvements, as outlined on the HERS audit report. • Completion inspection(s). • General contractor: • (sometimes called EEM Facilitator). • HERS audit report.

21. Cost-Effective Improvements • Cost Effective = dollar amount of energy saved (PV) during the useful life of EE improvements ≥ cost of improvements.

22. Sample HERS Report Recommended Improvements Useful Life Annual Savings Lifecycle Savings Estimated Cost Actual Cost Test and seal ducts 30 $406 $5,301 $800 $850 Add attic insulation to R-49 30 $1,200 $15,480 $3,000 $3,500 Upgrade front windows to double pane low-E 25 $557 $7,270 $6,000 $5,900 Replace water heater 15 $66 $624 $1,500 $1,500 HERS Report n/a $500 EEM Facilitator n/a $200

23. Examples Seal Ducts and Install Windows Replace Water Heater Only • Cost of Energy Package • $ 850 Seal Ducts • $ 5,900 Install Windows • $ 500 HERS Report • $ 500 EEM Facilitator • $ 7,750 Total • Lifecycle Savings - $12,571 • Is this package Cost Effective? • Cost of Energy Package • $ 1,500 • $ 500 HERS Report • $ 500 EEM Facilitator • $ 2,500 Total • Lifecycle Savings - $624 • Is this package Cost Effective? • Maximum amount of energy package that can be financed = $624 23

24. Maximum Amount for Energy Improvement Base Loan Amount + Energy Efficient Package = Subtotal + UFMIP = Total FHA Loan Amount • May exceed the statutory mortgage limits for a given area, by the financed amount of Energy Package.

25. Maximum EE Package Eligible to be Financed • The maximum amount of the energy efficient package that can be added to the base loan amount is the lesser of A or B as follows: A. The dollar amount of cost-effective energy package, or B. The lesser of 5% of: • The value of the property, or • 115% of the median area price of a single family dwelling, or • 150% of the conforming Fannie Mae/Freddie Mac limit. • Reference: ML 2009-18.

26. Polling Questions What is an EEM? What is an Energy Package? What is the Job of an EEM Facilitator?

27. FHA Calculator

28. FHA Calculator

29. Qualifying Ratios • The qualifying ratios are based on the base mortgage. • Without the energy package costs - plus UFMIP. • Up to 33 percent on the front, and 45 percent on the back, when property is compliant with 2000 IECC standards. • The qualifying ratios are calculated on the base mortgage plus UFMIP without the energy package costs. • Decision Credit Score below 620 and DTI exceeding 43 requires manual underwriting.

30. Case Sample Borrower(s) EEM and Property • Steve and Cindy are purchasing a home and would like to save money on energy utilities and heard about the EEM program from a lender. • They are both teachers. • They receive a preliminary underwriting approval. • Value is approximately $100,000. • EEM calculator indicates $7,900 maximum. • HERS Report shows improvements cost $6,000. • UFMIP is 1.75%. Calculate the Total Loan Amount with UFMIP

31. Calculate Total Loan Amount $100,000.00 • Value • Max Loan Amount 96.5% • EEM Improvements Costs • Subtotal • Calculate UFMIP Total Loan • Total Loan $96,500.00 $5,000.00 $101,500.00 $1,776.25 (1.75% X $101,500.00) $103,276.00 ($101,500.00 + $1776.25)

32. EEM Resources • FHA Connection – EEM Calculator • Case Processing Screen • EEM Home Page: http://www.hud.gov/offices/hsg/sfh/eem/eemhome.cfm • Sample EEM Worksheet • Cross Reference Tips • Median Area Prices • National Conforming Loan Limits: http://www.fhfa.gov/Default.aspx?Page=185 • Residential Energy Services Network: http:/www.resnet.us 32

33. Course Review • You have now gained an understanding of the purpose of EEM and other FHA EEM policies; specifically, you will now be able to: • Describe what an EEM is. • Explain the Key Components of the EEM program. • Explain FHA Calculator. • Describe Qualifying Ratios. • Identify the components of the HERS Report. • Calculate the cost effectiveness of an EEM.

34. EEM Mortgagee Letters and Key Issues Addressed 13-05 EEM Policy - Manual Underwriting for Loans with Decision Credit Score Below 620 and Total Fixed Payments to Effective Income Ratio Exceeding 43.00% 09-18 EEM limits increased 05-21 Basic EEM provisions, noted that in multi-unit the total EEM fund based on entire property and not one unit 98-02 EEM with the 203(k) 97-22 New Construction, Revised inspection, EEM software and user’s guide, Appraisals 97-10 EEM with 203(h). Meeting both programs requirements 95-46 EEM expansion - Nationwide, 203(k), ARMs, existing construction References: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/eemlette The 4155.1 also has an EEM section, chapter 6 section D.

35. EEM Mortgagee Letters and Key Issues Addressed (cont’d.) 93-35 Flexibility in complying with 1992 Model Energy Code - more time to complete construction 93-29 Various program updates. EEM allows incentives from utility companies to count towards down payment 93-26 New construction started on or after Oct 24, 1993 must meet 1992 Model Energy Code to be insured Some exceptions apply 93-13 Pilot EEM program established in 5 states - AL, AK, CA, VT, VA

36. Reminders: • Course Evaluation • Recorded version of webinar will be available on the HUD website • Webinar FAQs will be available on HUD website Resources: • FHA Knowledge Database: • http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ • HUD Handbooks 4155.1 & 4155.2 • TOTAL Scorecard User Guide • CALLFHA (800) CALLFHA – (800) 225-5342 or email us at answers@hud.gov. Next Steps & Resources 36

37. We look forward to your participation in other training events. Thanks for attending this course! • Overview of HUD/FHA Programs • Home Mortgage Insurance for Disaster Victims 203(h) • FHA 203(k) Rehabilitation Mortgage Insurance Program • FHA Home Equity Conversion Mortgage (HECM) • How to Manually Underwrite an FHA Mortgage • Credit Underwriting - Borrower Analysis • Credit Underwriting - Loan Calculations • Fundamentals of DE Credit Review & TOTAL Scorecard • DE Lender & DE Underwriter Roles & Responsibilities • FHA Condominium Approval Process • Fundamentals of Insurance Endorsement • FHA Appraisal Requirements - Property Types • How to Review an FHA Appraisal 37

38. Energy Efficient Mortgage (EEM)