By Ray Birch
PARSIPPANY, N.J.—One lender is hoping that its new “Carbon Neutral Mortgage” will appeal to environmentally conscious borrowers and that credit unions will sign on to the product.
The new program, introduced by Residential Home Funding Corp. of America, in partnership with Carbon Credit Capital, substitutes the mortgage’s closing costs for the price of carbon offset credits.
The thinking, explained George Pakenham, director of business development at Residential Home Funding, is that environmentally conscious borrowers would rather pay to offset their home’s carbon footprint for the life of their loan rather than pay the financial institution closing costs.
“Studies from Yale University show that 45% of the American public recognize the impact of carbon on our environment,” said Pakenham. “If 45% of Americans are this aware of the impact they and their home are having on the environment, then we should offer a carbon-neutral mortgage. That was the thinking.”
The typical fees for a 30-year fixed rate mortgage at Residential Home Funding Corp. are a little more than $1,000, Pakenham explained. The carbon offsets for a typical 2,500-square-foot home costs $1,000. He said the Carbon Neutral Mortgage carbon offsets amount to an estimated 100-350 tons of carbon dioxide emissions. The carbon offsets are removed from circulation and retired in the borrower’s name.
Pakenham said that Carbon Credit Capital, since it brokers carbon offsets, can cover the costs of the offsets at a lower price than a typical consumer could on their own.
Carbon Credit
He also noted that Residential Home Funding is not raising its mortgage rates to cover the carbon offsets, and that borrowers will typically save $100, when paying for the offsets instead of the closing costs.
A carbon credit is a tradable certificate that verifies mitigation or avoidance of one metric ton of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent to one ton of carbon dioxide. Carbon credits and regulated carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases. One carbon credit is equal to one ton of carbon dioxide. The carbon credits used in the Carbon Neutral Mortgage are voluntary emissions reductions (VERs).
Reed Shapiro, director of business development at Carbon Credit Capital, explained that carbon credits are typically issued to large projects that reduce carbon footprints by thousands of metric tons, such as eliminating and replacing a coal-fired plant with a solar array. Those verified emissions reduction credits can then be sold to companies and the public. The goal is for market mechanisms to drive industrial and commercial processes in the direction of low emissions.
Shapiro acknowledged that the Carbon Neutral Mortgage is certainly a niche product.
“There are several sides to this coin,” he said. “First, some people just don’t give a darn about offsetting their home’s carbon footprint. There are some who may feel that in paying for a credit they are not really making an impact on the environment themselves, they are just paying money for an offset being acted on by a company.”
Yet there are many people, as studies indicate, who like the idea of carbon offsets, Shapiro noted.
“There are a lot of people who care about their carbon impact on the environment and would like to in some way make a difference,” said Shapiro. “But they often have no idea how to do it, and the ways they are often familiar with can be cost prohibitive in the short run, such as geothermal heating, solar power, or an energy retrofit to their home. A lot of that stuff is not exactly same day immediate bang for your buck or is not financially feasible for many. What the Carbon Neutral Mortgage does is allow people to have an immediate impact on the environment without having to put a lot of money down and wait 15 years for solar panels to pay off. It’s a much more simple way to take action.”
New Jersey Just The Start?
The product was introduced at the start of 2018 and one credit union in New Jersey has expressed interest, said Pakenham. Pakenham said he hopes some credit unions in this state, currently the only state the mortgage is being offered in, will add this to their product line. He also thinks the product would help the 40% of credit unions that currently don’t offer mortgages.
“I think this product could have really strong appeal in environmentally conscious states like Colorado and California,” Pakenham added.