Green discounts for home loans?

WASHINGTON — Picture this: You're shopping for a larger home, dropping by open houses on a weekend. Each house you visit has an easy-to-understand disclosure about something that's typically unknown today — its energy-guzzling costs per year.

The Obama administration's top housing official, Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), thinks consumers deserve more information on the energy efficiency of the houses they buy — resale and newly built. And he thinks mortgages should come with lower rates or better terms to encourage purchases and retrofits that save energy.

"When you buy a car," he said in an interview, "you know very clearly what the energy efficiency of that (vehicle) is because there's a number on the window. It says: 'Here's the gas mileage.' We don't know that for housing."

A Harvard-trained architect who ran New York City's Department of Housing Preservation and Development for four years before coming to HUD, Donovan said his agency is in the early stages of discussions with federal energy officials to develop "a relatively simple scoring system for housing that would allow you to understand what you're buying and at the same time allow lenders to underwrite that into their mortgage. Ultimately, if your energy bills are going to be lower, there ought to be some (mortgage) benefits to that."

The system might also factor in transportation costs to employment centers in some way, he said, because "most people don't realize that the average American family spends over 50 percent of their income on a combination of housing and transportation."

Even with distant suburbs' lower prices for houses, "their transportation costs are huge" — and metropolitan sprawl itself represents a massive energy-consumption inefficiency.

Mortgage terms — higher loan amounts for buyers to make energy-conserving improvements, lower mortgage rates for energy-efficient homes — "can be a very powerful tool" in residential energy conservation, he said, and the Federal Housing Administration (FHA) insurance program would be a good place to start.

"If in the long run there's a cost of $5,000 to upgrade a house that will produce $10,000 in savings over time for utilities, the perfect tool to realize those savings is a mortgage," said Donovan.

Though Fannie Mae, Freddie Mac and FHA all have had versions of "energy-efficient mortgages" on the books for years, their programs have been poorly marketed and little used. Donovan wants to revive and improve the whole concept.

In a wide-ranging discussion, Donovan also touched on a variety of other issues.

On national housing policy: He believes that although "homeownership is a very important national goal," federal policy is "imbalanced" — overwhelmingly favoring single-family ownership over rental housing options, which tend to allow greater density and more-efficient land use.

Rather than attempting to limit federal tax breaks that are heavily skewed to ownership, Donovan would prefer to expand and improve FHA's apartment-financing programs and produce more rental housing options in general.

"One of the reasons" President Obama named him to this Cabinet post, Donovan said, was "to bring HUD's multifamily rental (programs) into the 21st century."

On tax issues, Donovan believes there are millions of potential buyers of houses who do not itemize deductions and would not now qualify for money-saving write-offs for mortgage interest and property taxes. In his view, they should receive some form of federal tax break, as proposed by Obama during his campaign.

Donovan also believes there has been a misperception about the administration's budget proposal to limit deductions for upper-income households earning $250,000 or more.

This "wasn't targeted at the mortgage-interest deduction," he said, but rather "was really about deductions more broadly," because taxpayers in higher brackets get far greater benefits for making charitable contributions or owning a home than households in the middle and lower brackets.

On FHA, Donovan is "absolutely concerned" by its explosive growth — from less than a 3 percent market share during the boom years to more than 30 percent today.

That sort of rapid expansion increases the potential for fraud and bad loans slipping through, which is why he is pressing congressional appropriations committees for long-delayed money to upgrade FHA's computer systems and monitoring ability, plus adding staff.

Given FHA's challenges, Donovan said he opposes reinstating the once-popular seller-financed "down-payment assistance" program, which allowed borrowers to obtain FHA-insured loans with no equity stakes.

The Bush administration banned seller-financed down-payment assistance last year, citing high rates of early foreclosures and excessive losses.

Homebuilders, real-estate agents and some congressional Democrats want to resume the program, but Donovan said, "I think the decision that was made" to kill the program "was the right decision."

Kenneth R. Harney: kenharney@earthlink.net