Of all the dumb legislation and regulations related to housing market, a bill being proposed John Isaacson (R-GA) and Michael Bennet (D-CO) ranks right up there with the dumbest. The bill is called the Sensible Accounting to Value Energy Act.
These two mental midgets are proposing that banks considering the monthly utility costs of a home when underwriting mortgages for a potential borrowers. Their thinking is that utility costs are a significant burden on home owners and therefore should be considered as part of the underwriting process for government sponsored mortgages (Fannie/Freddie/FHA). There are some obvious reasons as to why it makes no sense to try to include utility costs in mortgage underwriting. The most notable being that different families have different utility needs and usage. For instance, some families may blast air conditioning/heating all year long while others may enjoy natural ventilitation or using fireplaces. Utility costs are extremely variable depending on the owner of the home.
The second issue is that counting utilities adds yet another layer of complexity to an already overly complicated underwriting process. The debt ratios that banks use have been developed over many
decades and already reflect that there are some unaccounted costs when it comes to home affordability. To require specific documentation is simply not necessary. In addition, one has to ask when enough is enough. For example, some people probably spend more each month on gas for their cars than they do for utility bills for their home. Should we also require require borrowers to disclose what type of car they drive and their weekly commute to better gauge how much they spend on gas for their cars?
The third issue is that a responsible homeowners should know how to budget for their own utility costs. Dare I say if a homeowner can’t afford their utilities, they can’t afford the house. Secondly, if they can’t figure out that they have to consider the miscellaneous upkeep associated with owning a home, maybe they aren’t quite smart enough to be a home owner. As we found out during the housing bubble, home ownership is not meant for everyone.
Finally, there may be other motives associated with this piece of legislation. When you read between the lines of the bill and look at who is supporting the legislation you get a clearer picture as to what the real intent of the legislation might actually be – creating supposed “green jobs.” The LA Times reports:
“Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Assn. of State Energy Officials, among others.
Business groups such as the U.S. Chamber of Commerce are backing the legislation because they see it as an employment generator that requires no federal budget outlays and no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be created by the legislation if the new underwriting rules were phased in over a period of years.”
When I read that quote, my transalation is that some how this legislation or future legislation is going to force homeowners to make energy efficient upgrades to their homes. By tying the utility costs to mortgages, homeowners who do not make these upgrades will be a significant disadvantage in the market place if borrowers cannot get mortgages to finance their property.
I’ll let you know how this legislation is progressing in future posts.