Federal housing officials and Fannie Mae have created a program to allow owners of existing affordable rental housing properties to refinance into new mortgages that include funding for energy- and water-saving upgrades as well as other needed property renovations.
Under the Green Finance Plus program, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA) and Fannie Mae will share the risk on loans to refinance existing rent-restricted projects while permitting owners to borrow additional funds to make energy-saving improvements to their properties.
“This program kills two birds with one stone,” HUD Secretary Shaun Donovan said. “It preserves our affordable rental stock, and it helps finance upgrades that will save energy and money over the long haul. We must make the smart investments in a more energy-independent economy. These investments will strengthen our economy, create the new industries and new jobs of the future, and reduce our dependence on an ever-fluctuating oil market. ”
Fannie Mae Executive Vice President for Multifamily Business Ken Bacon added, “Green Refinance Plus supports our ongoing commitment to creating a more sustainable rental housing market that is affordable to low- and moderate-income families. This program will provide more renters with renovated apartments in which to live, allow building owners to better manage their energy costs, and help communities by reducing the environmental footprint of our rental properties. Leveraging existing technology and expertise to bring proven energy and cost savings to rental housing is a win for everyone.”
Approximately every 10-15 years, owners of existing multifamily affordable properties typically refinance their mortgages, HUD reported. “In older apartment buildings, however, owners are hard-pressed to find additional financing to maintain or improve the physical condition of their properties, including making energy-efficient upgrades. Beginning next month, Fannie Mae and its participating lenders will begin accepting applications to refinance owners’ debt as well as improve the energy efficiency of their properties.”
Green Refinance Plus is intended to refinance the expiring mortgages of Low Income Housing Tax Credit and other affordable projects and lower annual operating costs by reducing energy consumption. Fannie Mae and HUD anticipate approximately $100 million in initial refinance volume with an average loan amount of $3.5-5 million. FHA will insure up to an additional 4-5 percent of the loan amount, or an average of approximately $150,000-250,000 per loan, to provide additional loan funds to pay for property improvements that save energy and water costs for owners and tenants, such as energy efficient windows and Energy Star appliances, and other needed property renovations.
Property owners will be able to select the energy-efficiency upgrades that make the most economic sense for their properties. Borrowers will obtain a "green physical needs assessment" completed by a qualified provider. This assessment identifies property improvements that reduce energy and operating costs and help borrowers make rehabilitation choices that will give them the greatest energy savings for their investment, according to HUD.
Green Refinance Plus is an enhancement of the Fannie Mae/FHA Risk-Share program, begun in the 1990s. It will provide funding for the refinance, preservation, and energy-efficient retrofits of older affordable multifamily housing properties, including those that are currently in Fannie Mae’s or FHA’s portfolios. This program allows for lower debt service coverage and higher loan-to-value ratios to generate extra loan proceeds for property rehab and energy-efficient retrofits.
