A securitization program Fannie Mae started last year to finance new energy-efficient homes has reached a critical mass.
Since the
That indicates that Fannie’s appetite for these mortgages has grown. The government-sponsored enterprise will be standardizing its loan purchases in this niche, said Arthur Johnson, vice president, capital markets at Fannie Mae.
“We’re looking to automate more so we can bring on more lender partners,” he said.
So far NVR Mortgage, DHIMortgage and Eagle Home Mortgage, all of which are lending arms of builders, have sold loans into the program. Homes must clear the Environmental Protection Agency’s bar for national Energy Star 3.0 certification to qualify.
About 100,000 Energy Star homes were constructed in 2019. The numbers for 2020 have not yet been released, but they’re expected to show growth as energy-efficient homes are growing in popularity. Energy Star-certified homes can save homeowners an average 20% in utility costs compared to a typical house built to code.
While builder affiliates have been the dominant users of the program, other mortgage companies can also submit loans if the homes they are financing qualify. With rates and inventory low, and single-family starts at
Fannie’s monthly green issuance has ranged from $1.8 million to $15.4 million in size since the program began 10 months ago. So far in 2021, Fannie Mae issued three transactions totaling $17 million. These included loans for properties in Arizona, Maryland, New York, and Texas. There have been two public auctions to date, Johnson said.
The GSE is looking to expand the types of energy-efficient certifications it may accept for new homes in order to generate a consistent supply of bonds to the market. The enterprise also is considering making retrofitted homes eligible in the long-term, Johnson said.
The fact that Fannie is now issuing green securities on a monthly basis also bodes well for the pricing lenders and others in the value chain could receive in the future, he added.
“The last two auctions were very positive and we hope that trend continues to benefit all market participants, particularly the borrowers,” Johnson said. “That is our goal.”
In general, institutional investors in the environmental, social and corporate governance sector like banks, money managers and insurers have been paying a premium for green bonds, according to a report issued by UBS’s chief investment office last month.
“For issuers with sound ESG strategies, we saw a small ‘greenium’ (i.e., a green bond valuation premium) emerging in the market,” Thomas Wacker, head of credit research at UBS Switzerland, and Michaela Seiman Howart, an analyst in London, said in the report.
Generally, the green term defines bonds that finance efficiencies that reduce environmental impacts. In Europe, where a large amount of investor demand is concentrated, an
In the ESG market, green bond issuance totaled $215 billion last year, outpacing issuance financing positive social outcomes, which totaled almost $134 billion, according to UBS’s analysis of data from the nonprofit Climate Bonds Initiative and Bloomberg.
Sustainability bonds, which finance a mix of green and social projects, totaled more than $61 billion.
As the
The buyer base for ESG bonds also tends to be relatively more stable than in the stock market.
When it comes to Fannie’s green single-family MBS in particular, investors were initially hesitant but now that volume has reached critical mass, they’re more comfortable with it, according to Johnson.
“As we build out the program we have seen more interest across the investor spectrum from money managers to bank portfolios and insurance companies, and ESG investment mandates have increased,” he said.
