Tony Liou

Citing a refocus towards affordable housing, the FHFA eliminated the green lending cap exclusion last fall, leading to uncertainty in the green lending market. Last month, Freddie Mac announced their continued commitment to the success of the Green Advantage program by shifting their focus to workforce housing. Green Advantage offers better pricing and more funds for 7-10 year, fixed-rate loans on workforce housing properties when the borrower commits to energy-saving improvements. The revised program supports the Agency's affordable housing mission while continuing to incentivize borrowers committing to energy and water conservation measures.

Focus on Workforce Housing

What is workforce housing? Freddie Mac defines workforce housing as a property in which at least 50% of the rents are affordable based on Area Median Income (AMI):

• 80% AMI in standard markets
• 100% AMI in cost-burdened renter markets
• 120% AMI in very cost-burdened renter markets
• 150% AMI in extremely cost-burdened renter markets

Freddie Mac offers an online Affordability Test to help determine whether your property qualifies.

If you are working on a deal that fits Freddie's workforce housing definition, be sure to ask about green pricing. The success of the Green Advantage program shows that the targeted savings are achievable, often at a reasonable cost per unit. A qualified energy consultant can help lenders and borrowers find a pathway to closing a green loan, which begins with ordering a green report.

Benefits Include Discount on Green Report, More Funds

Freddie Mac will reimburse up to $4,000 (previously $3,500) for a Green Assessment or Green Assessment Plus Report whether or not the loan qualifies as green—so long as the loan closes with Freddie Mac. In addition, a borrower may underwrite up to 50% of projected owner-paid energy and/or water savings based on a Green Assessment Report and up to 75% of projected owner-paid energy and/or water savings based on a Green Assessment Plus Report.  Interested borrowers with eligible properties must order a green report from a qualified provider.

Two loans are available under the Green Advantage program: Green Up and Green Up Plus, each with slightly different report requirements. Green Up borrowers need a Freddie Mac Green Assessment Report, an ASHRAE Level I energy audit detailing proposed property-level improvements that promote efficiency. The report describes projected savings in terms of utility consumption and dollars saved per improvement item. Green Up Plus borrowers need a Freddie Mac Green Assessment Plus Report, an ASHRAE Level II energy audit that contains a more detailed analysis of projected savings and requires a more in-depth site visit.

Under either loan, the borrower must commit to improvements generating a minimum energy and water consumption savings of 30%, with at least 15% of savings coming from energy. And, both loans require benchmarking through ENERGY STAR Portfolio Manager for the life of the loan. A third-party provider of benchmarking services must be identified prior to close. Choose a qualify provider who can support you post-closing with ongoing benchmarking, specification review, and on-site verification.

Already Green Certified?

Borrowers can also take advantage of discounted pricing on properties that meet the same workforce housing requirements and have one of the following green certifications:

• EarthCraft, Greater Atlanta Home Builders Association & South Face
• ENERGY STAR for Multifamily, EPA
• ENERGY STAR for Qualified Multifamily High-Rise, EPA
• Green Communities, Enterprise Community Partners
• Green Globes, Green Building Initiative
• GreenPoint Rated, Build It Green
• LEED, US Green Building Council
• National Green Building Standard (NGBS), Home Innovation Research Labs

Great Incentive to Find Cost Savings

Whether planning to go green or not, lenders should consider ordering a green report for their borrowers. With Freddie offering a $4,000 reimbursement towards the cost of the green report, the borrower receives a free or deeply discounted ASHRAE energy audit that outlines recommendations for energy and water conservation. The green report may also be used to direct more energy efficient capital improvements. Additionally, if the property is seeking low income housing tax credit (LIHTC) funding, the state Qualified Allocation Plan may require an energy audit anyway—as is the case in New York and California.

A Green Rebate is available for borrowers who do not pursue Green Up or Green Up Plus and have a multifamily property with more than 20 units. Borrowers receive a $5,000 rebate for reporting an ENERGY STAR Score. There is no minimum score required to receive the rebate; however, both residential and common area energy data is required to generate an accurate ENERGY STAR Score.

With Freddie Mac's Green Advantage program, your borrowers win whether the loan closes green or not. Beyond the benefits of a green loan, owners of efficient properties enjoy lower operating costs, higher resale values, and greater appeal to increasingly demanding tenants. Steer your borrowers towards the Green Advantage program and they will ask you to finance their next project.