Essential Energy Efficient Mortgage and Weatherization tips for Escrow Officers
The emphasis on Energy Efficiency and Green issues in general are now becoming a significant consideration in transactions. There are two primary programs that support energy retrofitting within residential purchase and refinance processes. These are the Energy Efficient Mortgage and the Weatherization Program. Both create some unique considerations for Escrow Officers. The following reference sheet is intended to assist you in accommodating these programs within your Escrows.
| Energy Efficient Mortgage | -The most commonly used with FHA transactions, but may also be included on VA. -This is not a second loan; the energy improvement funds are included in the first loan. -100% of the cost of the qualifying measures can be included in the loan. The EEM has no impact on the borrower’s down payment requirements. -When borrowers elect to include a scope of work that exceeds the allowable amount under the EEM, they may bring in the additional funds themselves to add to the EEM escrow hold. -Many lenders limit the EEM to a maximum of $8,000, this is not a HUD rule although it is often represented that way which leads to a lot of confusion. -The energy retrofitting work that is covered with EEM funds is performed after escrow has closed. -The money is generally held in escrow until after the work has been completed. -The underwriter will forward an authorization for release of these funds once they have received the required documentation of work completion. The escrow officer is not involved in securing this documentation. -You should be informed that there is an intention to include an EEM when escrow is opened. (At this point, the lender will not generally know the exact amount of the EEM, but they can provide you with a maximum amount that can be included. Generally, a buyer will utilize the maximum available amount). -Within one to two weeks of escrow being opened the lender should know the specific amount of the EEM, and they should provide you with an update. -When you receive the loan documents and funding, it will appear that the loan is being overfunded. These additional funds must be held for the EEM. |
| Weatherization Program | -This program can cause extreme confusion for an escrow officer. Lenders should always inform you specifically when this is being included, unfortunately they don’t always do this. -Unlike the EEM, the weatherization program amount is included in the total for down payment purposes. The way that HUD directs underwriters to incorporate this is what creates much of the confusion for escrow officers. They are directed to add the amount under the weatherization program to the sales price before calculating the down payment. This is intended for calculation purposes only. Unfortunately, this does not account for the fact that it necessitates their changing it in all the software that is also used to draw the loan documents. This results in an escrow officer receiving a loan package that shows a higher sales price than the purchase contract that has been provided to them. If the lender has not specifically informed you that the weatherization program is being included, it can obviously lead to confusion and delay. It is also crucial that the weatherization component is considered when the file is closed out. Otherwise, this money can inadvertently be disbursed to one of the parties. Almost all weatherization program inclusions are done for $2,000. This is one of the indications that you may be dealing with weatherization if the loan documents are indicating a higher sales price than the purchase contract. The weatherization program is generally always done in conjunction with the EEM. The funds allocated for weatherization should be treated just like the funds for the EEM. |
Created by Kevin Nunn, Experienced Energy Financing, 12-3-2011
Sacramento 1st DBA Comstock Mortgage – Lic : 01390474
Kevin Nunn – NMLS 305826 / DRE 01158674
