Recently, several large banks have instituted a policy whereby they are extending $1,000 closing cost credits on green residential real estate mortgages. They offer these “green loan credits” in their retail banking divisions, but not in their wholesale lending divisions where most loans are sold. Some of these banks no longer even have wholesale lending divisions because of the current mortgage market meltdown in which many banks wrote so many bad loans they had to shut down their wholesale lending operations altogether. While these small closing cost credits of $1,000 are a start, overall this is barely a step in the right direction and would be correctly viewed as green washing by the savvy eco consumer. As the founder and principal of myEnergyLoan, I am considered a deep green business owner and savvy eco consumer. From my perspective, as somebody who has worked with hundreds of brands in the LOHAS/Cultural Creative space, the closing cost credits being offered directly by these banks are a shameful escape from reality – and a ridiculously manipulative way into the green market. In no uncertain terms, this is green washing at its finest. Conversely, myEnergyLoan efficiency credits are based on actual energy efficiency and/or location efficiency, since both speak to sustainability and a triple bottom line. In fact, from an energy-efficiency standpoint, the greater the efficiency (usually established using a home energy audit), the greater the myEnergyLoan discount; and the less money we make since we absorb the discounts as marketing hits/expenses. It is not a problem for us to earn less now since we can still earn a small profit on each transaction and hope to earn more through volume. We don’t believe myEnergyLoan provides the ideal incentive mix, but it is the best available to residential green real estate buyers. We are working extremely hard in conjunction with about 50 other partners called the Capital Markets Partnership to create a Sustainable Mortgage Backed Security (SMBS). The SMBS will provide a safe and profitable outlet for banks to provide incentives for green real estate buyers and rapidly solve several crises all at once (see upcoming blog on this subject). A simple beginning would be for traditional lenders to provide strong pricing incentives in retail and wholesale lending. A half-point better pricing on green loans is both simple and affordable from a lender’s perspective. It’s also something that is easy to implement throughout mortgage lending sales channels. A universal overlay program like myEnergyLoan is a great approach because at myEnergyLoan we qualify borrowers as we normally would, thereby providing the borrower with a customized loan program that best meets their needs. Then we qualify the building and extend an actual financial incentive based on level of efficiency gain – more efficient = more incentive. If banks adopted our strategy, then more money would circulate and banks would profit even more! This does not require complete modification of underwriting standards beyond these simple pricing incentives. It is simple enough even for distracted leaders of large banks to grasp and implement the myEnergyLoan concept and we need them to respond quickly. Better pricing is a relatively minor internal underwriting adjustment that provides a disproportionate benefit – in the banks favor – when considering risk factors such as increased security of collateral (since green buildings are more valuable) and reduced default rates (since homes are more affordable to operate if they are energy efficient. Further, early adopters of green building technology are more committed buyers). Further still, the second and third bottom lines are positively impacted without any effort at all. Read that line again. An interesting side effect is that banks will have triple bottom line orientation and in most cases not even know it! This could demonstrate to the banks that it is not such a monumental task to re-orient their business since it would happen naturally just by offering a half-point better pricing incentive for green buildings. This is incredibly powerful and most importantly it is a simple way to deal with an incentive program without much perceived sacrifice on the bank’s part, and certainly no actual sacrifice. The downside is that it might just be too simple. No committees are needed and only a few decision makers need to be involved. As banks get experience with green buildings, they will feel the benefits through increased shareholder value because their investments – the actual mortgages that are secured by the green real estate – will be performing better. We don’t call them high performance buildings because they underperform. Banks like making money so they will crave more of the same since they will do just that. The bank leadership will be heroes internally and externally. Older bankers will actually be their grandchildren’s heroes again! While traditional bankers won’t likely buy these concepts all at once, these are the desired impacts and they follow logically. Test them. Try them on for size; Bat these ideas around a little with your friends. Again, I don’t want to discount any step in the right direction and the last thing I want to do as we convince the capital markets to shift to sustainable business practices is offend their leadership even as they are incredibly offensive to me. I would hate to alienate the “big guys,” most of whom have no clue as to what green washing means anyway. Most of them still think “hippie” every time they hear the word green. I especially don’t want to offend them at this particular time while they (and the rest of us) are reeling from the market pendulum swinging from guidelines that were way too liberal to guidelines that are now way too conservative. Think of it like this…It’s very much like slamming on the brakes and correcting course before careening into oncoming traffic. The greatest damage turns out to be that your coffee flies out of the cup holder, cracks your windshield and splatters latte throughout the entire car…what a mess! That was close! All this stuff you have to clean up…inside the cracks, under the seat, in the DVD player, the GPS and even inside the steering wheel. My clothes! You know, I need to just pull over fast, fix the crack in the window before it spreads and have this vehicle detailed because it’s such a mess! It ends up costing $1000 – out of pocket – to fix the crack in the windshield and detail a $28,000 vehicle just the way I like it. That’s expensive. But the car still runs, thankfully nobody died; sure my neck hurts and it was more than just a little inconvenient. We have to fix what`s broken – hopefully without causing even worse problems. This mortgage market reverberation will stop at some point and we have to ensure that we set up these banking folk for success without totally offending them. The good ‘ol gentle prod is imperative, even if, based on necessity, we need to prod them with high frequency in order to get them to react to the mess they caused. Why? Because we caused it too. They don`t operate in a vacuum. We have an insatiable appetite for “stuff.” Homes are tops on the list of stuff we want. Only now, we can have homes that are better for the environment, better for our health, way more comfortable and with a lower operating cost. Our swank new green buildings can help us achieve energy independence from foreign oil once and for all. And they can help get us off of fossil fuel (our collective cancer) altogether! Finally, many of the people who need to be “persuaded” about sustainability and the benefits associated with green real estate finance don’t believe global warming exists – at all! They listen to Sean Hannity and Rush Limbaugh and actually believe them! As a result, they have neither a need nor an urgency to change. Many of these people, who do math all day long, look at 2050 carbon standards and think, ya know, with my stress levels I will be dead in 30 years anyway – of natural causes. And here we are, the party poopers, easily being lumped in together as screaming liberals (for the record my leanings are libertarian since my concience and my sanity indicate that our two-party system is broken) literally yelling about 2020 carbon standard urgencies. In case you didn`t know…the damage is almost irreversible! I know we who seek sustainability are already focused on working early adopters…so let’s do it…let’s work with them, not just on them. We have to realize that early adopters of sustainable business practices often report to and work with the folks whom we correctly view as unconverted high value sustainability targets. Let’s give them something they can actually swallow – now – and let’s help them enjoy it. I hope this makes sense to you…if not, I might cry myself to sleep tonight; but i`ll hopefully wake up and do more of this work tomorrow until it actually gets done. For discloure`s sake, I have tried for nearly three years to convince every major bank in America that the green building market makes sense. We are making progress with a few of them, and for now, we`ll keep on doing myEnergyLoan the old fashioned way…by literally working through them.

Advertisements