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WHEN HOME heating oil prices recently did their jackrabbit impression and electric and natural gas usage took off, home buyers took the heat.

Many asked themselves why they hadn't purchased a more energy-efficient home, or spent the extra money to add an additional layer of attic insulation or thermal-pane windows.

The recent rise in energy prices has helped resurrect a little-promoted, but viable way for home buyers to handle increased costs. The energy-efficient mortgage (EEM) gives a borrower extra money to spend on needed improvements to an older home, or to pay for the energy-efficient features of a new dwelling.

Sound great? It can be. The only problem seems to be lack of publicity concerning the program.

"We're aware of the program, but as of yet we haven't processed any energy-efficient mortgages," said Robert Amico, sales manager for Norstar Mortgage Corp.

The structure for loan processing has been in place for more than a decade; the Veterans Administration and the Federal Housing Administration are prepared to work with an EEM.

Secondary mortgage buyers Fannie Mae and Freddie Mac have programs to handle the EEM option or a similar mortgage.

Fannie Mae spokesperson Bonnie O'Dell said that the Federal National Mortgage Association knows there is interest in its Energy Conservation Home Financing Program, but keeps no records on how many actually are processed. A recent Department of Housing and Urban Development survey of 5,000 FHA applications showed that just one had used the EEM option. One survey indicated that, since 1982, only 17,000 EEMs had been processed, mainly in California and Vermont.

"We've seen some solar energy systems in California using EEMs which have been processed through the VA or the FHA," said William R. Prindle, senior program manager for the Washington, D.C.-based Alliance to Save Energy.

Fannie Mae basically eases its qualifying guidelines under the EEM program. Buyers obtaining conventional mortgages generally can pay no more than 28 percent of gross monthly income for housing, and no more than 36 percent for all debts.

But under the EEM program, those percentages are increased to 30 percent and 38 percent, respectively.

The rationale is that part of the larger loan can be used to improve a home's energy efficiency, lowering its fuel bills, with a net savings in housing costs.

Fannie Mae allows energy improvements to be included in a home's purchase price, as much as 15 percent of the property's value. Enhancements must be made within 120 days of loan closing.

John Nevin, manager of mortgage standards for Fannie Mae, said primary difficulties with the program are that home buyers don't know about the program and what kinds of improvements they want to install. Taking the time to determine such improvements is not usually uppermost in a purchaser's mind.

Not only must buyers be trained to know the advantages of the program, so, too, must lenders. A quick survey of local lending institutions indicated that, while most were aware of such a program, few, if any such loans had been processed locally.

"Chase Lincoln does offer the program, mainly for new construction," said Pam Serafini, a vice president. "Homes must meet guidelines set up by Corning which exceed the state's energy-efficient codes."

The National Association of Home Builders' thermal-performance guidelines are the national standard for homes qualifying for an EEM.

Ms. Serafini said that, while the program has been around for a number of years, Chase had written no EEMs in Buffalo, and only 10 had been processed in Rochester.

Fannie Mae's Ms. O'Dell said that one reason EEMs haven't been given a lot of play by financial institutions is that the mortgage can take up to two weeks longer to process.

"Longer processing times can be a problem for institutions, particularly during very busy times," Ms. O'Dell said. One reason for possible holdups is that older homes and some new construction must obtain for Fannie Mae an energy-efficient rating from an appraiser, called an energy addendum.

"The energy addendum must be completed by appraisers and given to the lenders as part of the mortgage processing package," Ms. O'Dell said.

New homes that meet the National Association of Home Builders' Thermal Performance Guidelines do not need an energy addendum.

The entire EEM program was developed in response to President Jimmy Carter's national push in the late 1970s to conserve energy. VA and FHA programs allow a buyer to add up to $2,000 to the mortgage for energy-saving improvements, and up to $3,500 with an appraiser's ruling that the work justifies the expense.

If energy prices remain high, housing experts agree that energy-efficient mortgages will become popular, particularly in areas like the Northeast.

"For an area like Buffalo, it certainly makes sense," said Norstar Mortgage's Amico.

[box] Energy-efficient mortgages
What a home would need

Adequate insulation in ceilings, exterior walls, roofs, around hot water heaters, under floors covering unheated areas, around ducts and pipes in unconditioned areas.
Caulking and weather stripping.
Fireplace combustion-air and flue dampers, and fire door.
Dampers for exhaust fans.
Double- or triple-pane windows.
Automatic setback thermostats.
Heat and cooling appliances designed specifically to be energy-efficient.

What are the savings?
While a larger loan means larger mortgage payments, part of the loan is to be used for energy improvements to reduce energy costs. The money saved on energy can thus be applied to making higher mortgage payments.

Using an EEM should give a home buyer a net saving in housing costs.
SOURCE: Federal National Mortgage Association

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