Imagine financing a mortgage for a home made almost entirely out of beer bottles.
Or a house built hallway into the ground, using old car tires in the construction. While houses like these may seem far fetched, a very small, but growing segment of the home lending market is made up of such energy efficient homes that don't lit the traditional mold.
Of course, most of these homes are not made out of bottles or tires. Many of them are made out of materials that people have been using lot hundreds of years but which are more sought-after in these conservation- friendly times. For instance adobe, the insulating earthen bricks used in southern clinics, is a relatively com- mon construction material in the southwest because of its ability to keep out the summer heat and retain the sun's warmth in winter.
But many of the newer energy-efficient homes are being made out of more unusual materials such as Rostra block - a sort of large brick made up of recycled materials like concrete and Styrofoam cups. Other homes are made from materials like straw bales, used tires and incorporate unusual energy efficiency designs.
Despite the fact that such homes are not found on every block and cul-de-sac, providing mortgages turns out to be a relatively run-of- the-mill procedure. The more of them that are built and retain their value, the more mainstream the lending becomes. Take EarthShips, a housing construction in New Mexico that includes a variety of energy efficient designs and uses tires in the construction.
"Up until about a year ago, the secondary mortgage market had no comps for these Earth Ships,- says Angel Keyes, vice president and CIO of Centinel Bank of Taos in N.M.
Now it's just like any other construction loan."
Retaining Resale Value
The efficiency of super energy efficient homes improves their value, and they are proving to he good investments as the homes are re-sold for much more than they cost to build, community bankers say. it's incredible how the market rewards for that type of construction.- Keyes says.
Previously, Keyes says, the appraisals were low for come of the newer homes, but over time that has changed. 'What we do see now is that we have transactions and you see equity gained,"
Charter Bank in Albuquerque, N.M., is very active in making loans on homes constructed from non-traditional materials such as straw hale and rammed earth. Glenn Wertheim, president of Charter Mortgage Co., is familiar with this type of housing and says knowing the particulars of a home's location is the important thing in making lending decisions.
The process for considering and placing financing on these less traditional homes isn't really any different. You simply have to consider these property distinctions in the under- writing g process," Wertheim says. in that consideration, I would say, you have to have a much better than average expertise in underwriting appraisals, and know the markets you are lending in intimately, down to the neighborhood. "For new construction you have to look at the builder's credentials and expertise in using nontraditional building materials. Ultimately you have to judge the market acceptance and desirability of the home within its neighborhood."
The question is this, says Enchain, "Is our collateral value secure relative to the loan we make on the property?"
Because nontraditional materials like adobe and straw bale are more common in New Mexico, Charter Bank can generally offer any of its regular home loan products to customers, Wertheim explains. Some loans fall outside the regular secondary market guidelines but meet the bank's investment criteria. "We offer a variety of portfolio loan options to our customers. We have worked with our investors and government agencies over the years to help them become comfortable with this type of lending."
Jerry Walker, executive director of the Independent Community Bankers of New Mexico, says many of these structures are made well and have proven themselves over time, particularly the adobe homes, which he says have amazing insulation and durability.
If the structure is sound, Walker says, the process is simple. "Once the state and local building officials have signed off on [these homes), they are treated like any other type of mortgage," he says.
Energy Savings Touted
The trend toward more energy efficient houses is capturing the attention of those in the housing business, ac- cording to Robert Sahadi, vice president for Housing Impact at Fan- me Mac. "There's a wealth of things happening," he says. "It's something lenders and home builders have be- come pretty excited about," adding that such homes "have become much more conventional over time."
Sahadi says Fannie Mae is not as concerned about whether houses have unusual features as long as their energy efficiency can be verified. He also says if a home is unable to get an appraisal that is commensurate with the cost of building it, an addendum can be used calculating the energy savings and tacking it on to the value of the home.
And it's not just in the southwest that these houses are found. While they are popular in places like Arizona, California and New Mexico, they are sprinkled all over the country, says Sahadi, who noted building these homes has been "very aggressive" in cities like Columbus. Ohio, and Indianapolis.
"Nationally builders have been devoting more time to the construction of these types of homes." he says, conceding that a prejudice against them had to be overcome first But over time, because of improved technology and a lower cost of building such features, more of these homes are going up. The more commonplace they are, the more accepted they are among homebuyers and lenders.
As Sahadi puts it. "This is a theory whose time has come,"
The time may be even more close at hand considering the increasing awareness of energy usage and cost. Sahadi suggests that with the energy situation in California this year and growing energy costs elsewhere, the idea of living in a home that helps conserve energy is growing in popularity.
Reyes agrees, pointing out that residents in his area seek out homes that save energy costs. "Now you have more and more demand for self-sustaining homes." he says. That is not only because they save money on energy bills, but because people are getting more interested in conservation in its own right. "You have more people who are aware of the needs of the environment," Reyes says.
Reyes also believes that the future is bright for growth in energy-efficient housing once people become more aware of its benefits. "The market has not realized the potential as with other types of housing."
Apparently financing mortgages for unconventional housing has come a long way, and it looks as though they are here to stay. Local lenders, who are very familiar with their communities are seeing the need for such lending products arc embracing them. Gone are the days when, as Walker puts it, federal lenders would look at a mortgage application for an adobe house with a great deal of skepticism. They'd see 'mud houses,' and I'm sure they would probably scratch their heads."