Green Mortgages

I am working on an interesting project this summer at HUD dealing with green mortgages. A green mortgage is essentially a new mortgage underwriting technique which a borrower can qualify for if the house is energy efficient, healthy, and durable.

Green mortgages require a larger initial investment and a larger loan (up to 15%). This investment will finance green improvements to an existing home or finance the additional costs of building a new home to green standards. However, over the life of a mortgage (15-30 years) the savings from energy and health costs will be substantially more than the increase in your PITI, thus yielding returns that could reach tens of thousands of dollars. Furthermore, since the initial improvement was financed by your mortgage, the returns of your investment are felt immediately as you will be paying less energy+PITI.

Green houses can cut energy costs by up to 50%. It is unknown how much health costs will be reduced by improved air quality.

By factoring in these savings into mortgage underwriting formulas, borrowers can qualify for larger loans. On a macro level, this means that more people can qualify for home loans, the marginal borrower is going to need less total income, and that access to homeownership will improve.

Because mortgage default is so costly to the lender, underwriters must allow a good deal of type II error (false negatives) to make up for the risk of a type I error (false positive - so basically banks deny a lot of applications that would have turned out to be solid investments to overcompensate for the uncertainty of risk). By factoring in energy and health savings into mortgage underwriting, underwriters get a more accurate estimate of a borrowers risk of default and are thus more confident in their assessment. Improved confidence in risk assessment means that more loans will be accepted at the margin, which will primarily benefit low-income households and underserved populations.

Lastly, mainstreaming green mortgages could be useful in the housing climate today. By allowing more people to take out loans, this will shift the demand for housing upwards, driving up price and quantity. By investing in the quality of our homes, houses will be worth more, further driving up price and allowing households to build more home equity.

Notice I haven't made an environmental argument? Thats because it is a good policy even without the added bonus of saving the planet.

So basically Green Mortgages are fucking cool as shit. They literally have zero down-side. Good for lenders, borrowers, good for the economy.

GI Bill Passes

The GI Bill passed the Senate by an overwhelming margin, 75-22.

Happy Memorial Day

Happy Memorial Day to everyone. I hope you ate as well as I did: smoked ribs...so good.

I was happy to see the media focus on the GI Bill today, given its relevance to the holiday. Hopefully we will see much more coverage in the days and weeks to come.

I find the conservative argument against the bill curious. They say it will deplete our forces, but I know I would be more willing to sign up if I knew the government was going to set me up with home loans and college tuition after I serve. After all, our problem isn't with retaining troops, it is with recruiting soldiers during two wars that have no end in the immediate future and a potential future war with Iran. Silly Republicans.

Update: The New York Times agrees.

Obama's Commencement Speech

I thought Obama's commencement speech today provided a better insight into his vision for America than the typical stump speech or victory speech.

My First Post Ever - GI Bill

Welcome to The Arse's first blog entry ever. Having landed an internship in Greensboro with the US Department of Housing and Urban Development (which I am completely stoked about), I find myself living with my parents for the first time in 5 or 6 years and will thus be consumed with boredom and the overwhelming desire to speak about politics, policy and economics on higher plane than anyone here in Greensboro can offer. Just last night, having forgotten that I was no longer surrounded by graduate students, I politely corrected a young lady about a misconception surrounding the housing crisis espoused by many conservative opponents to any sort of housing bailout. I explained to her that, actually, individuals in low-income neighborhoods are much more likely to be adversely effected by the housing crisis because they are more likely to have poor credit and take out subprime loans on properties that are not likely to appreciate. Therefore, they are stuck making payments in excess of their property value as their interest outstrips their property appreciation. Instead of debating the merits of my points, she looked at me funny and walked away. That was the point when I realized I needed to start a blog to vent my nerdy pursuit of policy and not heap it on poor unsuspecting drunk people in Greensboro, North Carolina that make misinformed comments.

So anyway, on to my first meaningful topic: the new GI Bill proposed by Sen. Jim Webb is a subject that should garner much more press than it does (If any of the readers of this entry were in Social Insurance with me, then you will realize I am stealing most of this from the mouth of Dr. Wenger, but I'm cool with that). The previous GI Bill was passed in the wake of WWII in order to provide a leg up to war veterans. Benefits of the GI Bill included increased access to home loans and business loans and paid for college tuition. However, this bill primarily benefited white veterans as minorities still faced barriers to college education and housing discrimination legislation was not passed until 1968 (Housing Discrimination) and 1976 (Community Reinvestment).
The primary difference between Sen. Webb's bill and the previous GI Bill is that the American armed service today is a volunteer force. Minorities and the poor are disproportionately represented in today's force, whereas the force in WWII was overwhelmingly white and of all economic backgrounds. Therefore, the new GI Bill would have the opposite effect of benefiting minorities and the disadvantaged.
Senator John McCain and President Bush are opposed to Senator Webb's bill. They argue that this would drastically deplete America's fighting force as soldiers would leave the service to take advantage of their benefits.
Senator Obama, who supports the bill, and Senator McCain have recently traded very charged comments concerning this bill, briefly bringing the national spotlight to the bill before Senator Clinton's assassination remarks consumed the political media. Needless to say, I am looking forward to this debate over the coming months. Firstly, because I honor our veterans and I am very anxious to reward them for their service. But also, I look forward to Senator Obama and Democratic candidates for the House and Senate nationwide arguing on behalf of our troops while Senator McCain and other doomed Republican candidates oppose it.