On the second anniversary of its launch, Fannie Mae’s Single-Family Green Mortgage-Backed Securities (MBS) programme surpassed $1 billion in issuance and was recognised by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy as an ENERGY STAR® partner for the second consecutive year. Fannie Mae’s commitment to achieving beneficial environmental, social, and economic results by financing single-family homes that surpass energy- and water-saving criteria is demonstrated by the expansion of this programme. The success of Fannie Mae’s Single-Family Green MBS can be attributed to the increasing participation of lenders and investors who presumably value the program’s rigorous and transparent certification of newly constructed homes.
According to studies, residential housing is responsible for around 20 percent of all greenhouse gas emissions and nearly 10 trillion gallons of water consumed yearly in the United States. The industry’s push to cut emissions and water consumption requires a sustained effort, which is why Fannie Mae and its business partners devised a programme emphasising more severe energy efficiency standards for newly constructed homes.
The Single-Family Green Bond programme of Fannie Mae is based on green building certifications (GBCs) that have stringent requirements for what makes an energy-efficient home (learn more). Annually, GBCs are examined to verify if they match the expected energy criteria for newly constructed residences, which can result in the removal or addition of certifications. Current qualified GBCs meet or exceed the criteria for ENERGY STAR® Certification for New Homes (Residential) 3.0, which are at least 10 percent more energy efficient and, on average, 20 percent more energy efficient than current state energy code requirements.
In recent years, the bond market has witnessed a growth in green issuances, providing investors with an assortment of investment choices, each with its own green benefits. With its demanding GBCs, Fannie Mae’s programme assures that investors can effectively quantify the environmental and social benefits of their investments. A new house with the ENERGY STAR badge has been examined and tested at various phases of construction to ensure it fulfils the EPA’s comfort, durability, and energy efficiency standards.
Prior to pouring a foundation and framing a home, ENERGY STAR building partners submit plans to an Energy Rating Company for review and analysis to decide which energy-efficient elements should be incorporated. Throughout the construction of a new home, ENERGY STAR builder partners and Energy Rating Companies collaborate to ensure that the home’s energy-efficient features are optimal for the climate region and that the home’s key systems function properly, with critical construction details verified at various building stages. After construction is complete, an Energy Rating Company will examine the property to see if it meets energy efficiency criteria.
A property may get a good Energy Rating Index (ERI) Score or Home Energy Rating System (HERS) Index Score, which is a requirement for the certification, but it will not receive a GBC certification if it does not fulfil relevant GBC standards. As part of the programme, PEG, LLC verifies independently that all properties underlying Single-Family Green Mortgage-Backed Securities (MBS) got an appropriate GBC.
Additionally, the program’s transparency is particularly useful for investors with an emphasis on the environment. The website provides easy access to information on issue, underlying loans, and related resources. In addition, the environmental, social, and economic advantages of each individual security are quantified and reported at the CUSIP level, contributing to the annual impact metrics of the aggregate. Homes financed under the Single-Family Green MBS programme in 2020 and 2021 are estimated to save about 45 million Kilo British Thermal Units (kBtu) of energy, prevent 2,132 metric tonnes of carbon dioxide equivalent GHG emissions, and reduce utility expenses by an average of $265* each year. In addition, the Single-Family Green Bond Framework of Fannie Mae received a Light Green Second Opinion from CICERO Shades of Green, a renowned global provider of green bond ratings. CICERO Second Opinions are independent, research-based reviews of green bond investment frameworks that determine the environmental resilience of green bonds and provide investors with a deeper understanding of the environmental quality of these bonds. In its analysis of the framework, Cicero determined that “Fannie Mae’s stated energy efficiency requirement that exceeds the national building baseline is a strength.”
In addition to its focus on investor transparency, Fannie Mae committed to programmatic issuance when it debuted its Single-Family Green MBS for the first time in 2020. Through June 2022, 69 transactions have been executed, with at least one issuance per month. These transactions involving 30-year and 15-year fixed-rate mortgages have ranged in value from $2.9 million to $123 million over the past year.
In the meanwhile, the program’s success can be attributed in part to the relationship with top-tier lenders such as NVR Mortgage Finance, Lennar Mortgage, Union Home, and DHI Mortgage. Several new lenders, including Guaranteed Rate Inc., First Heritage Mortgage LLC, Pulte Mortgage LLC, M/I Financial, and LHM Financial Corp., have joined the market in the past year.
As the number of lenders has increased, the geographical diversity of the loans pooled in these transactions has expanded. In the past year, the Single-Family Green MBS has expanded into California, Florida, Washington, Virginia, Nevada, and the District of Columbia. Not only do investors like Fannie Mae’s regular monthly issuance of Green MBS, but they also value the geographical diversity of the residences included in these issuances.
This is only the beginning, the third year of the Single-Family Green MBS programme. Fannie Mae is committed to expanding the programme and enabling more resilient housing and a less carbon footprint for Fannie Mae-financed residents.
