The Senate may move forward this week on an energy bill that would result in more government meddling and wasting taxpayer dollars on activities better left for the private sector.
Members have offered more than 150 amendments, many of which would make an already bad bill even worse. One such example comes from Sens. Michael Bennet, D-Colo., and Johnny Isakson, R–Ga.: the Sensible Accounting Value Energy (SAVE) Act (Amendment 3042).
The SAVE Act would effectively further subsidize government-backed mortgage loans under the pretense of energy efficiency. The bill imposes new regulations on loans insured by the Federal Housing Administration (FHA). These regulations go farther than most of the current mortgage rules, however, because they dictate an increase in the amount of money that people will be able to borrow. For starters, the proposal requires the “expected energy cost savings” from conservation programs to be included in borrowers’ debt-to-income test. In other words, loan applicants will effectively have their income increased because underwriters will be required to reduce borrowers’ estimated future living expenses.
Regardless of whether their actual living expenses decline in the future, borrowers would qualify for larger FHA loans as a result of this requirement. And it’s not as if the FHA currently has high standards. Borrowers can already get FHA loans with a 3.5-percent down payment, a FICO credit score as low as 580, and a total debt-to-income ratio of more than 50 percent. These low standards would be even further compounded by what are typically inflated energy savings estimates. (Many studies, including some conducted by the government’s national laboratories, have shown that the Department of Energy overestimates the expected savings from energy efficiency upgrades.)
Another feature of the proposal potentially magnifies these effects by micromanaging the appraisal process. The amendment would compel appraisers to add the alleged value of estimated energy savings to the property under consideration for a mortgage.
To the extent that a home’s existing energy-conservation measures should be included in the estimated value of that home, this section of the proposal is unnecessary. Appraisers already base their estimated market values on all existing elements of the property, including energy-efficiency products in the home. It simply is not true that current rules don’t allow appraisers to incorporate this value into their estimates.
Overall, the SAVE Act will most likely inflate home prices beyond the level that existing federal programs already do. At the very least, the SAVE Act will encourage additional borrowing via government-backed mortgages with low credit standards.
The Senate Energy Modernization Act already has a number of energy efficiency programs that would leave taxpayers with the bill. The SAVE Act amendment would expose taxpayers to even more risk. It appears Congress learned nothing from the housing crisis a few years ago. Artificially qualifying people for risky mortgages in this manner could result in the same “homeowners underwater” scenario that resulted in more taxpayer-funded bailouts. With the SAVE Act, Congress wants to codify it.
The term “SAVE Act” exemplifies everything that’s wrong with how policymakers view the market. If energy-efficient products have as much value as proponents of these programs say they do, they won’t need the government to mandate their value or subsidize their use. The private sector will drive energy savings for businesses and families, and the market will properly assign the value—not bureaucrats in Washington.
