Mortgage firm focuses on energy efficiency

As rising interest rates slacken demand for mortgage loans, a Lansing broker hopes to carve a niche among borrowers watching the growing cost of fuel.

Priority Mortgage Corp last month closed on two so-called Energy Efficient Mortgages, which allow borrowers to qualify for more financing to include costs of energy-related home improvements. Indigo hopes to leverage its expertise to develop a market statewide.

Although available for 25 years, such mortgages today are attracting more attention from lenders, brokers and real estate agents.

"It is very easily the best-kept secret in the mortgage industry," said Joel Wiese, a loan officer and general manager of the Lansing Indigo office. "Within Michigan, there really aren't any other companies that are doing this at all. It's a neglected area."

Part of the reason is that like many niche products, it requires some amount of study on the part of the broker. It took Wiese several months just to figure out how it works, he said. It also requires a certified energy efficiency inspector to evaluate a house and recommend the most cost-effective projects.

Wiese took up the program to set himself apart from other lenders among real estate agents, he said. He recently closed what the product developer, the Federal National Mortgage Corp., confirmed as the first conventional Energy Efficient Mortgage in Michigan.

"We're seeing that lenders see this as a way to define a portion of the market for them that other lenders in their markets might not have," noted Michelle Desiderio, senior product developer for Washington, D.C.-based Fannie Mae [NYSE:FNM].

Such products also are available from the Veteran's Administration and the Federal Housing Administration, based on a 1979 executive order promoting energy savings. Fannie Mae's conventional mortgage product, however, opens the market to a wider group, Desiderio said.

"The advantage is that it recognizes that you're spending less to operate your house, so you can afford more for your payment," she explained.

Once a buyer is pre-qualified, an energy audit is completed and the buyer presented a list of approved projects, from caulking to new windows and even solar heating systems. Funds for such projects are placed in escrow after closing and rolled into the mortgage when the work is completed by professional contractors.

Part of the appeal of the loans, Indigo's Wiese said, is that borrowers can use up to 15 percent of the property's appraised value for such projects, rather than being limited by home equity. They can be used for house purchases or refinancings.

The first such loan Wiese closed will save the borrower $740 annually in utility costs and will cut the monthly payment by $60 compared to a conventional mortgage payment, he said. Another one he recently closed helps the borrower save $1,500 a year on utility costs, he claimed, as well as additional mortgage payment savings.

The bottom line, he said, is that lenders recognize that utility savings equate to higher disposable income.

His office, one of 55 independently owned Indigo franchises in Michigan, is seeing wider interest in the product throughout the state, Wiese said. In addition to widening its operating market, he said, his office is readying a marketing push locally targeting older neighborhoods where such mortgages are likely to see more interest.

Other lenders also are taking a new look at the program.

"The sad thing is that we're not doing a large volume of them and I think it's more of a consumer awareness issue," said Laura Kelley, Wayne County-based national specialty lending manager for National City Corp.'s mortgage operations.

Cleveland-based National City [NYSE:NCC] has closed such home-improvement loans, Kelley said, as part of her office's focus on often-overlooked populations.

Such residential loans have a business sector parallel in the P2 Loan Program created by the Michigan Department of Environmental Quality. Indigo does some commercial financing and Wiese looked into the P2 program, but he said he hasn't sought to become active in it at this point.

The pollution prevention loans provide up to $300,000 at 5 percent interest or less to independent businesses with 500 or fewer full-time employees, according to the program's Web site. Funded projects must eliminate or reduce waste, result in environmentally sound reuse and recycling or conserve energy or water. Funding comes from a revolving loan fund that was part of the voter-approved Clean Michigan Initiative in 1998.