II 112th CONGRESS 1st Session S. 1737 IN THE SENATE OF THE UNITED STATES October 19, 2011 Mr. Bennet (for himself and Mr. Isakson) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To improve the accuracy of mortgage underwriting used by Federal mortgage agencies by ensuring that energy costs are included in the underwriting process, to reduce the amount of energy consumed by homes, to facilitate the creation of energy efficiency retrofit and construction jobs, and for other purposes.

1.

Short title

This Act may be cited as the Sensible Accounting to Value Energy Act of 2011.

2.

Definitions

As used in this Act, the following definitions shall apply: (1)

Covered agency

The term covered agency— (A)means— (i)an executive agency, as that term is defined in section 102 of title 31, United States Code; and (ii)any other agency of the Federal Government; and (B)includes any enterprise, as that term is defined under section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502). (2)

Covered loan

The term covered loan means a loan secured by a home that is issued, insured, purchased, or securitized by a covered agency. (3)

Homeowner

The term homeowner means the mortgagor under a covered loan. (4)

Mortgagee

The term mortgagee means— (A)an original lender under a covered loan or the holder of a covered loan at the time at which that mortgage transaction is consummated; (B)any affiliate, agent, subsidiary, successor, or assignee of an original lender under a covered loan or the holder of a covered loan at the time at which that mortgage transaction is consummated; (C)any servicer of a covered loan; and (D)any subsequent purchaser, trustee, or transferee of any covered loan issued by an original lender. (5)

Secretary

The term Secretary means the Secretary of Housing and Urban Development. (6)

Servicer

The term servicer means the person or entity responsible for servicing of a covered loan (including the person or entity who makes or holds such a loan if such person or entity also services the loan). (7)

Servicing

The term servicing has the meaning given the term in section 6(i) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)).

3.

Findings and purposes

(a)

Findings

Congress finds that— (1)energy costs for homeowners are a significant and increasing portion of their household budgets; (2)household energy use can vary substantially depending on the size and efficiency of the house; (3)expected energy costs are important to the value of the house; (4)the current test for loan affordability used by most covered agencies, commonly called the debt to income test, is inadequate because it does not assess the expected energy costs for the homeowner; and (5)another loan limitation, commonly called the loan to value test, is tied to the appraisal, which often does not adjust for efficiency features of houses. (b)

Purposes

The purposes of this Act are— (1)to improve the accuracy of mortgage underwriting under Federal mortgage agencies by ensuring that energy costs are included in the underwriting process as described below, and thus to reduce the amount of energy consumed by homes and to facilitate the creation of energy efficiency retrofit and construction jobs; (2)to require covered agencies to include the expected energy utility costs of a homeowner as a regular expense in the tests, such as the debt to income test, used to determine the ability of the loan applicant to afford the cost of homeownership for all loan programs; (3)to require covered agencies to include the value of energy savings with the appraised home value in the loan to value metric so that loan amounts can reflect the value home buyers place on the energy efficiency of a house, taking precautions to avoid double-counting and to support safe and sound lending; and (4)to direct the covered agencies to make the necessary credit policy decisions to adjust the maximum permitted debt amounts or debt to income ratios for eligibility to accommodate inclusion of expected energy costs.

4.

Enhanced energy efficiency underwriting criteria

(a)

In general

Not later than 1 year after the date of enactment of this Act, the Secretary shall develop and issue guidelines for all covered agencies to implement enhanced loan eligibility requirements, for use when testing the ability of a loan applicant to repay a covered loan, that account for the expected costs of energy for a loan applicant at the subject property, in the manner set forth in subsections (b) and (c). (b)

Requirements To account for energy costs

The enhanced loan eligibility requirements required under subsection (a) shall include a requirement that for all covered loans, the covered agency and the mortgagee shall take into consideration the estimated energy costs expected for the owner of the subject property in determining whether the loan applicant has sufficient income to service the mortgage debt plus other regular expenses. To the extent that a covered agency uses a test such as a debt-to-income test that includes certain regular expenses, such as hazard insurance and property taxes, the expected energy costs shall be included as such an expense, and the maximum permitted amounts or ratios for eligibility shall be adjusted to accommodate the average expected energy costs. Energy costs to be assessed include the cost of electricity, natural gas, oil, and any other fuel regularly used to supply energy to the subject property. (c)

Determination of estimated energy costs

(1)

In general

The regulations to be issued by the Secretary under subsection (a) shall include instructions for the covered agency to calculate estimated energy costs, using the following approach: (A)If no energy efficiency report for the subject property, as described under paragraph (2), is provided to the mortgagee, then the mortgagee shall determine the estimated energy costs for the subject property based upon the size of the subject property and an average per square foot energy cost for properties of that building type in that region. The most current version of the Residential Energy Consumption Survey of the Energy Information Administration, as such survey is authorized under section 205(k) of the Department of Energy Organization Act (42 U.S.C. 7135(k)), may be used as the basis for the average per square foot energy cost, or the Secretary may approve use of another source. (B)If an energy efficiency report is provided to the mortgagee, then the findings in such report shall be used in determining the estimated energy costs of the subject property, and shall be provided to the appraiser for use in estimating the energy efficiency of the house and potential adjustments for energy efficiency. (C)Additional sources of information may be incorporated into the method for determining expected energy costs, as determined by the Secretary. (2)

Report requirements

In order for an energy efficiency report to be valid and acceptable for the purposes of paragraph (1)(B), such report shall— (A)estimate the expected energy costs specific to the subject property, based on specific information about the property; (B)be prepared in accordance with rules and guidelines to be issued by the Secretary under subsection (a); and (C)be prepared— (i)in accordance with the Residential Energy Service Network’s Home Energy Rating System (also known as HERS) by an individual certified by the network, unless the Secretary finds that such method does not further the purposes of this Act; or (ii)by other methods approved by the Secretary, in consultation with the Secretary of Energy and other stakeholders, including State energy offices, for use under this Act, which in all cases shall include a third-party quality assurance procedure. (d)

Required disclosure to consumer

If an energy efficiency report is used under subsection (c)(1)(B), the rules to be issued by the Secretary under subsection (a) shall require the mortgagee to— (1)inform the loan applicant of the expected energy costs as estimated in the report, in a manner and at a time as prescribed by the Secretary, and if practicable, in the documents delivered at the time of loan application; and (2)include such report in the documentation for the loan provided to the borrower. (e)

Limitations

A covered agency shall not— (1)modify existing underwriting criteria or adopt new underwriting criteria that intentionally negate or reduce the impact of the requirements or resulting benefits that are set forth or otherwise derived from the enhanced loan eligibility requirements required under this section; or (2)impose greater buy back requirements, credit overlays, insurance requirements, including private mortgage insurance, or any other material costs, impediments, or penalties on covered loans merely because the loan uses an energy efficiency report or the enhanced loan eligibility requirements required under this section. (f)

Applicability and implementation date

Not later than 3 years after the date of enactment of this Act, and before January 1, 2015, the enhanced loan eligibility requirements required under this section shall be implemented by each covered agency to— (1)apply to any covered loan for the sale, or refinancing of any loan for the sale, of any home; (2)be available on any residential real property (including individual units of condominiums and cooperatives) that qualifies for a covered loan; and (3)provide prospective mortgagees with sufficient guidance and applicable tools to implement the required underwriting methods.

5.

Enhanced energy efficiency underwriting valuation guidelines

(a)

In general

Not later than 1 year after the date of enactment of this Act, the Secretary of Housing and Urban Development shall, in consultation with the Federal Financial Institutions Examination Council, develop and issue guidelines for how covered agencies shall determine the maximum permitted loan amount based on the value of the property for all covered loans made on properties with an energy efficiency report as defined in section 4(c)(2). In addition, the Secretary of Housing and Urban Development shall, in consultation with the Secretary of Energy, within one year of enactment of this Act, issue regulations for covered agencies to determine the estimated energy savings for properties with an energy efficiency report as required by subsection (c). (b)

Requirements

The enhanced energy efficiency underwriting valuation guidelines required under subsection (a) shall include the following: (1)A requirement that if an energy efficiency report that meets the requirements of section 4(c)(2) is provided to the mortgagee, then such report shall be used by the mortgagee or covered agency to determine the estimated energy savings of the subject property. (2)A requirement that the estimated energy savings of the subject property be added by a mortgagee or covered agency to the appraised value for the purpose of determining the loan-to-value ratio of the subject property, unless the appraisal indicates it includes the value of the overall energy efficiency of the property, using methods to be established by the Secretary of Housing and Urban Development in regulations required under subsection (a). (c)

Determination of estimated energy savings

The amount of estimated energy savings shall be determined by calculating the difference between the estimated energy costs for the average comparable house, as determined in rules to be issued by the Secretary of Housing and Urban Development under subsection (a), and the estimated energy costs for the subject property, using the energy efficiency report, as determined under section 4(c)(2). The period of the savings shall be based upon the estimated life of the applicable equipment, consistent with the rating system used to produce the energy report in section 4(c)(2). The present value of the future savings shall be discounted using the average interest rate on conventional 30-year mortgages, in the manner directed by guidelines issued by the Secretary of Housing and Urban Development under subsection (a). (d)

Ensuring consideration of energy-Efficient features

Section 1110 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3339), is amended— (1)in paragraph (3), by striking the period at the end and inserting ; and; and (2)by adding at the end the following: (4)that State-certified appraisers have timely access, whenever practicable, to information from the lender relevant to an appraisal of the energy and water efficiency or conserving improvements or features of a property, such as labels or ratings of buildings and installed appliances, blueprints, construction costs, incentives regarding energy- and water-efficient components and systems installed in a property, and third-party verifications or representations of energy and water efficiency performance of a property, observing all financial privacy requirements adhered to by certified and licensed appraisers, including section 501 of the Gramm-Leach-Bliley Act (15 U.S.C. 6801), unless the property owner consents to the lender, an appraiser shall not have access to the commercial or financial information of the owner that is privileged or confidential. . (e)

Transactions requiring State certified appraisers

Section 1113 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3342), as amended by section 1473(e)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is amended— (1)in paragraph (1), by inserting before the semicolon the following: , or any real property on which the appraiser makes adjustments using an energy efficiency report; and (2)in paragraph (2) by inserting after atypical the following: , or an appraisal on which the appraiser makes adjustments using an energy efficiency report.. (f)

Protections

(1)

Authority to impose limitations

The guidelines to be issued under subsection (a) shall include such limitations and conditions determined by the Secretary to be necessary to protect against meaningful under or over valuation of energy savings or duplicative counting of energy efficiency features or energy savings in the valuation of any subject property used to determine a loan amount. (2)

Additional authority

At the end of the 7-year period following the implementation of the program established under this Act, the Secretary may modify or apply additional exceptions to the approach described in subsection (b), where the Secretary finds that the unadjusted appraisal will reflect an accurate market value of the efficiency of the subject property. (g)

Applicability and implementation date

Each covered agency shall, within 3 years after the date of enactment of this Act, and before January 1, 2015, implement the guidelines required under this section, which shall— (1)apply to any covered loan for the sale, or refinancing of any loan for the sale, of any home; and (2)be available on any residential real property (including individual units of condominiums and cooperatives) that qualifies for a covered loan.

6.

Monitoring

Not later than 1 year after the date on which the enhanced eligibility and underwriting valuation requirements are implemented under this Act, and each year thereafter, each covered agency with relevant activity shall issue and make available to the public a report that enumerates the number of covered loans of each such agency that used enhanced loan eligibility requirements, for which there was an energy efficiency report, and that used enhanced energy efficiency appraisal guidelines. Such report shall include the default rates and rates of foreclosures for each category of loan.

7.

Rulemaking

The Secretary shall prescribe regulations to carry out this Act, in consultation with the Secretary of Energy and stakeholders, including State energy offices. Such regulations may contain such classifications, differentiations, or other provisions, and may provide for such proper implementation and appropriate treatment of different types of transactions, as in the judgment of the Secretary are necessary or proper to effectuate the purposes of this Act, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.

8.

Additional study

Not later than 18 months after the date of enactment of this Act, the Secretary shall establish an advisory group with the purpose of advising the Secretary on the implementation of the enhanced energy efficiency underwriting criteria established in sections 4 and 5. The advisory group shall provide recommendations to the Secretary on any revisions or additions to the enhanced energy efficiency underwriting criteria deemed necessary by the group, which may include additional factors to account for substantial and regular costs of homeownership such as location-based transportation costs and water costs. The Secretary shall forward any legislative recommendations from the advisory group to Congress for its consideration.