Fannie Mae’s green loan program reaches critical mass


A securitization program launched last year by Fannie Mae to finance new energy-efficient homes has reached critical mass.

Since green single-family mortgage-backed securities program started last April, Fannie has securitized $ 111 million so far and has established a regular schedule of bond issuance, she announced last week.

This indicates that Fannie’s appetite for these mortgages has increased. The government-sponsored firm will standardize its loan purchases in this niche, said Arthur Johnson, vice president of capital markets at Fannie Mae.

“We are looking to automate more so that we can attract more lending partners,” he said.

So far NVR Mortgage, DHIMortgage, and Eagle Home Mortgage, all of which loan guns to builders, have sold loans under the program. Homes must pass the Environmental Protection Agency bar for National Energy Star 3.0 certification to qualify.

Approximately 100,000 Energy Star homes were built in 2019. Figures for 2020 have yet to be released, but they are expected to show growth as energy efficient homes gain popularity. Energy Star certified homes can save homeowners an average of 20% on utility costs compared to a typical home built to code.

While affiliate builders have been the primary users of the program, other mortgage companies may also offer loans if the homes they finance qualify. With prices and stocks low, and the single-family home is starting to a record never seen since 2007, lenders are seeing demand for newly built homes.

Fannie’s monthly green issue has ranged from $ 1.8 million to $ 15.4 million since the program started 10 months ago. So far in 2021, Fannie Mae has issued three transactions totaling $ 17 million. These included loans for properties in Arizona, Maryland, New York and Texas. There have been two public auctions to date, Johnson said.

The GSE is looking to expand the types of energy efficiency certifications it can accept for new homes in order to generate a steady supply of bonds in the market. The company is also considering making the renovated homes eligible long-term, Johnson said.

The fact that Fannie now issues green securities on a monthly basis also bodes well for the pricing that lenders and other value chain players may receive in the future, he added.

“The last two auctions have been very positive and we hope this trend will continue to benefit all market participants, especially borrowers,” Johnson said. “This is our goal.”

In general, institutional investors in the environmental, social and corporate governance sector like banks, fund managers and insurers pay a premium for green bonds, according to a report released last month by the investment bureau. from UBS.

“For issuers with solid ESG strategies, we have seen a small ‘greenium’ (i.e. a valuation premium for green bonds) emerge in the market,” said Thomas Wacker, head of credit research. at UBS Switzerland, and Michaela Seiman Howart, analyst in London. , said in the report.

In general, the term green defines obligations that fund efficiency gains that reduce environmental impacts. In Europe, where much of investor demand is concentrated, a official standard because such links are in progress. This standard is in the process of being finalized late this year.

In the ESG market, green bond issuances totaled $ 215 billion last year, surpassing positive social outcomes financing issuances, which totaled nearly $ 134 billion, according to UBS analysis of data from the nonprofit initiative Climate Bonds and Bloomberg.

Sustainability bonds, which fund a mix of green and social projects, totaled more than $ 61 billion.

As the The frenzy of GameStop actions for example, investor interest can be fashionable and unpredictable. However, ESG bonds have grown steadily since 2014. The pandemic made social bonds relatively more popular in 2020, but green bonds still dominate.

The buyer’s base for ESG bonds also tends to be relatively more stable than in the stock market.

When it comes to Fannie’s green single-family MBS in particular, investors were initially hesitant, but now that the volume has reached critical mass, they’re more comfortable with it, according to Johnson.

“As we develop the program, we have seen increased interest from all investors, from fund managers to bank portfolios and insurance companies, and ESG investment mandates have increased,” did he declare.

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