Federal National Mortgage Association: Two Years Later, Fannie Mae’s Single-Family Green MBS Issuance Exceeds $1 Billion

Fannie Mae’s Single-Family Green Mortgage-Backed Securities (MBS) program eclipsed $1 billion in issuance on the second anniversary of its launch and was recognized by the U.S. Environmental Protection Agency (EPA) and the US Department of Energy as an ENERGY STAR® Partner for the second consecutive year. The growth of this program illustrates Fannie Mae’s continued commitment to achieving positive environmental, social and economic outcomes by financing single-family homes that exceed energy and water-saving standards. Fannie Mae’s green single-family MBS has taken root thanks to the growing participation of lenders and investors who likely appreciate the program’s rigorous and transparent certification for newly built homes.

Studies have shown that residential housing accounts for approximately 20% of all greenhouse gas emissions and nearly 10 trillion gallons of water used each year in the United States. The industry campaign to reduce emissions and water consumption requires a sustained effort, which is why Fannie Mae has developed a program with business partners emphasizing ever-increasing energy efficiency standards. more stringent for newly built residential properties.

The foundation of Fannie Mae’s Single-Family Green Bond program is built on Green Building Certifications (GBCs) which have strict requirements for what constitutes an energy-efficient home (learn more). GBCs are evaluated annually to determine if they meet our expected energy standards for newly built homes, which sometimes results in certifications being removed or added. Currently eligible GBCs meet or exceed the criteria for ENERGY STAR® for New Homes (Residential) 3.0 certification, which is at least 10% more energy efficient, but has an average of 20% more energy efficiency than current code requirements energy of each state.

In recent years, the bond market has seen an increase in green issuance offering environmentally conscious investors an array of investment opportunities, each with their own green benefits. Fannie Mae’s program, with its rigorous GBCs, enables investors to effectively measure the environmental and social benefits of their investments. A new home with an ENERGY STAR label has been inspected and tested at various stages of construction to verify that it meets the requirements developed by the EPA to provide comfort, durability and energy efficiency.

Even before foundations are poured and carpenters frame a home, ENERGY STAR Building Partners submit plans to an energy rating company for review and analysis to determine what energy-efficient features should be included in a home. ENERGY STAR building partners and energy rating companies work closely together throughout the construction of a new home to ensure that its energy-efficient features are ideal for a home’s climate region and that key systems of the new house are working properly, with critical construction details checked in various buildings. steps. An energy assessment company will inspect the property after construction is complete to check if it meets energy efficiency requirements.

A property may achieve a favorable Energy Rating Index (ERI) or Home Energy Rating System (HERS) score, a requirement for certification, but if it does not meet the appropriate GBC standards, it will not receive no GBC certification. As part of our program, PEG, LLC, provides independent verification that all properties underlying our single-family green MBS have received an eligible GBC.

In addition, the transparency of our program is particularly helpful to environmentally conscious investors. Details of the issue, underlying loans and related resources are readily available on our website. Most importantly, the environmental, social and economic benefits of each individual title are quantified and reported at the CUSIP level and contribute to our overall annual impact metrics. We estimate that homes funded through our single-family green MBS program in 2020 and 2021 are expected to save over 45 million kilo-British thermal units (kBtu) of energy, avoid 2,132 metric tonnes of carbon dioxide equivalent reduction in GHG emissions and, on average, reduce utility costs by $265*. In addition, Fannie Mae’s single-family green bond framework received a light green second opinion from CICERO Shades of Green, a leading global provider of green ratings for bonds. CICERO’s Second Opinions are independent, research-based assessments of green bond investment frameworks to determine the environmental robustness of green bonds and provide investors with greater insight into the environmental quality of those bonds. In his review of our framework, Cicero concluded that “it is a strength that Fannie Mae has an explicit requirement for energy efficiency that goes beyond the national building baseline”.

In addition to its focus on transparency for investors, Fannie Mae committed to programmatic issuance when it first introduced its single-family green MBS in 2020. Through June 2022, we have achieved 69 transactions, with at least one issue per month. Over the past year, these transactions involving 30- and 15-year fixed rate mortgages have ranged from $2.9 million to $123 million.

Meanwhile, the success of our program is due in part to our partnership with leading lenders such as NVR Mortgage Finance, Lennar Mortgage, Union Home and DHI Mortgage. Over the past year, several new lenders have joined us, including Guaranteed Rate Inc., First Heritage Mortgage LLC, Pulte Mortgage LLC, M/I Financial and LHM Financial Corp.

The growth in the number of lenders has broadened the geographical diversity of the loans pooled in these operations. Over the past year, new markets with homes funded by our single-family green MBS include California, Florida, Washington, Virginia, Nevada and Washington, DC. We believe that investors not only welcome Fannie Mae’s regular monthly Green MBS show, but appreciate the geographic diversity of residences in these MBS shows.

This is just the beginning, and we are excited to be entering the third year of the Single Family Green MBS program. We are committed to growing the program with a focus on supporting more resilient housing and a lower carbon footprint for residents of Fannie Mae-funded properties.

*See our 2020 Green Bond Impact Report for a description of our methodologies for calculating the environmental and social impact of our green MBS.

Andrew B. Reiter