How the SAVE Act Would Save New Homeowners

Who says Congress can't generate good ideas and get good stuff done anymore?

Well, lots of well informed people do. Lest we get too jaded, however, another gem of an energy efficiency bill has been dropped into the hopper. It has bipartisan sponsorship, it will reward frugal homeowners, it will reduce pollution, and it won't expand government. It won't cure the common cold, but it will benefit the country.

The details...

Senators Johnny Isakson, Georgia Republican, and Michael Bennet, Colorado Democrat, have introduced the SAVE Act, which would order the Department of Housing and Urban Development to account for home energy costs in underwriting and appraisal guidelines used by federal entities—e.g., Fannie, Freddie, and FHA—that back home loans. Those guidelines likely would set a standard for the private mortgage lending industry.

Today, home appraisals typically do not take into account a home's energy efficiency, which can be quantified by rating protocols such as the Home Energy Rating System (HERS). When a house is sealed up, well insulated, and has a high-efficiency heating and cooling system, it will have lower energy costs. The SAVE Act would require adding the present value of energy savings to the home's appraised value for purposes of determining loan-to-value numbers that banks use to figure out how much cash to loan you for a house. If the value is higher, the amount you can borrow against is higher.

In addition, accounting for a home's lower energy costs would work in the borrower's favor when lenders make debt-to-income calculations. In short, lower energy bills mean a greater ability to afford your PITI payment (that's pronounced "pity") - Principal, Interest, Taxes, Insurance.  The SAVE Act would require accounting for energy costs in making the debt-to-income calculation. The Alliance to Save Energy estimates that a house using 30 percent less energy than average would cut the borrower's costs $700 per year.

A couple of other bipartisan energy bills worth noting:

• S. 1000, by Senators Rob Portman (R-Ohio) and Jeanne Shaheen (D-New Hampshire), which would establish a loan program for industrial energy efficiency;
• S. 398, by Senate Energy and Natural Resources Committee leaders Jeff Bingaman (D-New Mexico) and Lisa Murkowski (R-Alaska), which would update efficiency standards for air conditioners and furnaces;
• S. 1029, by Senators Scott Brown (R-Massachusetts) and Mark Udall (D-Colorado), which would ensure that consumers have access to electricity consumption information generated by smart meters, which in turn could spotlight opportunities for upgrading a home's energy efficiency.

Small bore stuff? Sure, but these days, it's worth taking any quarter loaves that are on offer.