June 29: Energy Efficient Mortgages; What might a BofA settlement mean to clients?

Mortgage and Lending with Global Home Finance Inc. NMLS ID:316441 NMLS ID:184176

[I am away from the computer on a daily basis, and my access to e-mail is

sporadic and not timely. In my place are daily commentaries from a series of

very knowledgeable mortgage industry people with different backgrounds, and

they have been given very little direction about what to write about - the

latest is below. Our views may or may not coincide, but I thank them for

their time in volunteering and helping  out.]


How You Can Make a Difference


(and make a lot of money in the process)


I think it's fairly safe to say that most of the people who jumped into the

industry to promote the toxic loan products left a long time ago. For the

most part, those who remain in the industry to clean up this mess were not

the ones who were promoting the products to start out with. I am sure there

are a lot of Loan Officers who feel like I do. We have always put the needs

of our clients first and did not give in  to the temptation of the fat

commissions that were being offered to promote those products. We can't help

but feel that we are being punished for someone else's crimes.

The real irony is that many of the changes that have come about actually

make it  harder those of us who have acted as professionals to serve and

protect the borrowers now.


Although most of us remaining in the industry did not cause the problems, we

are  in a unique position to solve them. I do feel that the biggest

opportunities remain fairly unidentified by most Realtors and Loan Officers



No matter who is responsible for the housing meltdown, there is no debate

that it has been devastating to the economy and resulted in a lot of

suffering. You can't work in this industry without seeing the hardship every

day. Clearly there is a need to stabilize the housing market and create

employment. We have the ability to do both with products that offer multiple

benefits right now. It is truly a case where 1 plus 1 equals much more than



Just about anywhere you go in this country there is a significant inventory

of distressed properties. There are also a significant number of skilled

people in the construction field that are currently unemployed. These two

dynamics have a clear symbiotic connection.


Currently, these houses are bringing down the values in these neighborhoods

as they sit empty and neglected. They're also putting a strain on law

enforcement and other municipal services at a time when they are already

struggling due to the lack of  revenue. When they do sell it is typically to

an investor who pays cash for the  property. Obviously, they're buying it at

a deep discount, which further reduces housing values and municipal

revenues. Typically, these investors either repair them and rent them out,

or repair and sell them. In either case they will not generally do more than

a token level of work to them. Since the extent of the repairs translates

directly into employment and revenue for the community, this is certainly

not an  optimal situation. They are also not concerned about including the

measures to increase the energy efficiency of a home because they will not

be paying the utility bills.


There are even direct correlations between the percentage of rental houses

in a neighborhood and things like teen pregnancy, drug abuse, dropout rates

and crime.

We have the ability to change this dynamic by increasing ownership.


Now, let's look at what we can create here. We have the products that allow

owner occupants to purchase these properties, repair them, and turn them

into very nice homes. They can make them very energy efficient as well. This

results in much higher levels of repair and upgrade to these properties

creating more jobs, higher sales prices, higher tax revenues, and better

neighborhoods. As if this is not enough,  cash buyers are not good for my

business or yours. I make my living originating  loans.


So how do we accomplish this? Let's talk about the energy efficiency

component of this for a moment. Increasing the energy efficiency of these

homes involves additional upgrades and job creation. It also makes the home

more comfortable, affordable, and dependable for the new owner. In many

cases the savings on their monthly utility bill can be substantially greater

than the cost that it adds to the mortgage payment.

This means the homeowner is holding onto money they would have been sending

to a  utility company every month. This money is remaining in the community,

creating  additional jobs and municipal revenue.


I am a huge advocate for the Energy Efficient Mortgage Program (EEM). In

fact, it is very likely that I have personally done more EEMs since the

program was introduced in 1993 than any other loan officer in the nation.

When this program was first introduced I was very excited about it. In all

honesty, my excitement was not based in any extremist desire to save the

world; it was based on the fact that this was clearly a way to remove a

major barrier for many buyers.


Let me explain; when I was talking to qualified buyers whether they were

first-time or move-up buyers, they had one thing in common, fear and

anxiety. The biggest factor among those who ultimately chose not to buy was

fear and anxiety. They were looking at increasing their monthly housing

expense. They had to deplete their savings to get into the home and would

now be responsible for any major unexpected repairs.

 Their concerns were legitimate.


I recognized the EEM as a great way to protect these buyers and alleviate a

lot of their fears. The program required an independent evaluation to

determine that  the savings on their energy bill would be greater than the

increase to their mortgage payment. This made the house more affordable.

Most importantly it addressed the single most common unexpected expense that

affects homeowners in my area, the failure of their air-conditioning unit.

There is typically no warning of this, and it is  very expensive to replace.

Here was a program that allowed them to finance 100%  of the cost to replace

that old inefficient air-conditioning unit with a brand-new,

state-of-the-art one that was under warranty. Many of these distressed

properties have issues that can be addressed using nothing but the EEM. And

when properties  need upgrades and repairs that go beyond the EEM there are

several solutions we  can offer. The FHA 203K, Streamline 203K, and FNMA

Homestyle Renovation loans all provide opportunities for owner occupant

buyers to purchase these distressed houses and turn them into very nice



It has taken me almost 20 years of specializing in these programs to learn

how to use them effectively. If we are going to have the impact that we need

to on this  process we need to greatly reduce that learning curve. I created

a platform to assist policymakers, contractors, and those in the real estate

community with practical information on how these programs really work. If

you are interested in creating  a lot of opportunities for yourself while

making a significant contribution to solving the issues your community are

currently facing, you are welcome to utilize this resource at






I have also been speaking at state and national events to promote the

understanding of these opportunities. Some of these presentations may be

found on my site as well as a list of upcoming venues. I am currently

developing a video series that will  be offered through a blog format that I

will be introducing in the next couple of days. Through this I will be

offering ongoing tips and training related to these opportunities. If you

would like to receive these presentations please email

Scott.Short@Comcast.net [mailto:Scott.Short@Comcast.net] and we will ensure

that you are added to this distribution list. Although most of the

information provided there is relevant nationally, some of it relates to

local and state programs as I currently limit my loan origination to



Kevin Nunn


Residential Loan Officer specializing in homebuyer programs, energy

financing opportunities, and acquisition/rehabilitation financing throughout

the state of California since 1993.


Editor's note: Word has hit the tape that Bank of America is near an $8.5

billion settlement with a group of non-agency investors on

rep-and-warranty-related issues:

226 deals, of which 15 are re-REMICs. The remaining 211 deals have a current

balance outstanding of $79 billion and original balance of $178 billion. As

such, the $8.5bn of settlement translates into 10.8% of the current balance

and 4.8% of the original balance, but exact details are changing as more

comes to light and many questions remain. For example, for non-agency

investors, is the issue of whether the settlement payment is made to the

investor group directly or to the trusts involved in the complaint - both

have pros and cons although most believe that the money will likely flow

into the trusts, otherwise BofA would expose itself to a large contingent

liability from other investors in these deals. When will the money be dished

out to investors?

It is expected that the cash flow will come over several months.


What does this mean for BAC liability and other non-agency deals? Remember

that total Countrywide non-agency issuance during 2004-07 (the period during

which the deals in the settlement were issued) was $523 billion, so the

settlement covers about 35% of this. There is some fear that the remaining

65% of production, although probably cleaner, could be subject to more

liability, therefore between $24-30 billion!

Regardless, any positive news, which includes less uncertainty such as some

kind  of settlement, may help prices of existing securities.


But will this, or any settlement, be passed down somehow to the originators

which sold loans to Countrywide between 2004 and 2007? First, remember that

this settlement is for non-agency product. Second, and I am not privy to any

inside information,  just because a settlement includes a portion of

BofA/Countrywide's production, that doesn't mean that BofA, or any large

investor, will "call off the hounds" in pursuing full retribution against

originators. The settlement does not resolve issues for smaller lenders,

especially when fraud is involved, nor does it mean that BofA (or any

investor) would ever say, "Well, we settled for X pennies on the dollar,  so

we will let you do the same."


If you're interested, visit my twice-a-month blog at the STRATMOR Group web

site  located at www.stratmorgroup.com




. The current blog takes a look at near-term news for non-agency securities,

such as jumbo residential loans. If you have both the time and inclination

make a comment on what I have written, or on other comments so that folks

can learn what's going on out there from the other readers.



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