A year after launching its single-family green mortgage-backed security (MBS) program, Fannie Mae is celebrating a few milestones.
It has issued a total of $167 million in bonds pooling single-family homes, newly built to an ENERGY STAR certification of 3.0 or higher. It found that markets are willing to buy these MBSs faster and at slightly higher prices for underlying properties that run at least 20% more energy efficient than a normal home built to code. Fannie Mae was also awarded the 2021 ENERGY STAR partner of the year – sustained excellence award by the EPA and the Department of Energy. In the wake of this news Arthur Johnson (pictured), vice president of single-family capital markets at Fannie, is taking a moment to celebrate before moving the program forward again.
“A year in, we’re very pleased with how this program is going,” Johnson said. “We started off slow to ensure that we have the right infrastructure in place and a well-informed framework. This year has shown that we really had everything we needed in place and that with that infrastructure we were able to continue to grow. We’ve now incorporated more lenders and we’ve been able to issue more geographically diverse securities that investors have liked. We’ve been able to keep up our cadence of issuing at least one security a month, which has shown the investor community that we are committed to this and given more confidence to the market.”
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Johnson noted that, one year in, Fannie has started to learn just how big the appetite is for these securities on capital markets and the degree to which builders have wanted an outlet for these environmental certifications. He hopes that the program has highlighted the cost-effectiveness of an energy-efficient home among borrowers, showing them that if they lower their utility costs, they can carry a higher mortgage payment or use that capital for other means.
This growth comes against a backdrop of rising environmental, social, and governance (ESG) investment interest across the United States over a few years. More and more investors are following a conscious mandate as they deploy their capital. Johnson believes these green MBSs have a particular appeal for investors new to ESG investing, who are already familiar with how Fannie structures their securities. With third party verification backing up these securities’ green credentials, these investors can feel safe that what they’re buying meets the E part of their ESG mandate.
Now Johnson is looking ahead to further growth in the program. As home starts increase and more builders work at or above ENERGY STAR standards, Johnson is confident their pipeline of green MBS properties will grow. In addition, he noted that they’re also considering programs that can serve homes retrofitted to meet high environmental standards. At the moment, their biggest focus is growing a vendor base to keep the pipeline of new-built green homes flowing.
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As brokers look to this news and the fact that it seems, at least, that green MBSs are here to stay, Johnson emphasized that they could see a range of opportunities open up before them.
“I think one assumes that this is only for purchase mortgages, but it’s also for refis,” Johnson said. “Brokers should look at refis for these types of properties, because our focus is to try to get borrowers into these homes. We know they’re healthier homes and, thanks to lower utility costs, they’re more affordable.”