Anyone who’s endured the myriad of issues that come with closing on a home mortgage might want to get ready for the next wave of complexity and cost. And once again, climate change is the driver.
For starters, some of the world’s central banks are having their member banks look into the possible impact to existing loans if the forecasted climate change disastrous scenarios come to fruition: seashores underwater, fossil fuel over-dependency, adverse temperature changes, unacceptable levels of greenhouse gas emissions, and others.
Inevitably, the banking and mortgage finance industry will pass down to the homeowner its requirements for meeting new loan standards intended to mitigate the impact of climate change.
Presently, a homeowner looking to obtain mortgage financing is required to provide numerous documentation items to secure and close a mortgage loan.
It is not unusual to produce a title insurance policy, survey, an inspection of the mortgaged property’s utilities, evidence of adherence to local zoning and other municipal ordinances, credit report (score), income and assets verification, appraisal, termite-free inspection (not an issue in Vermont), and proof of identification.
And here are the possible new requirements with which the homeowner will eventually have to contend: first, has the proposed mortgage property been fully weatherized? And if so, empirical evidence will need to be provided from a licensed weatherization expert.
If the house has not been weatherized, then a hold-back of a portion of the mortgage dollars will be necessary for the weatherization work to be done. Assuming, of course, that the mortgage closing is to take place.
The second criteria that will be mandated for a mortgage commitment is for a Level 2 electric charging station (this has already been mandated for new home construction) to be installed. This requirement, which could cost approximately $700, must happen before closing occurs, or funds will be held back until the installation is accomplished.
The third, and the most expensive and complex of the possible new requirements, will be replacing all fossil fuel heating, cooking, and clothes drying apparatus. The cost of this change might be mitigated if bio-fuels are adequate to replace No. 2 heating oil or natural and propane gas. If not, mortgage lenders will be pressured to insist that any mortgage loan have a provision to fund the replacement of existing fossil fuel equipment.
What is unique is that the change mandates will not come from the government, at least not for now, but from the banking industry. It is not unlike how large corporations are mandated to bring more diversity to their entities’ governance. The pressure is coming from influential investors and the NASDAQ stock exchange.
Nike, McDonald’s, and Starbucks, to name a few, now have their top echelon officers’ compensation tied to how well they perform in bringing diversity and inclusion to their executive leadership. Periodic reporting of such must be provided to the companies’ boards and shareholders.
And the influence of advocating for change is not solely outside of government. Here in Vermont, a member of the Vermont Climate Council’s subcommittee on Just Transitions noted the following in a May 29, 2021 Rutland Herald column, “As Vermont takes steps to adopt a clean energy economy, we need to ensure people aren’t losing their jobs in fossil fuels, but rather transitioning into different jobs — ideally union jobs.”
The author Danielle Bombardier goes on to say, “The state should pass card check legislation streamlining the process for employees to unionize their workplace. The state should also stipulate that any contractors performing work on green energy projects over 500kw are compensating their workers with the Vermont prevailing wage.”
Ms. Bombardier, in addition to being a VCC sub-committee member, is also secretary/treasurer of the Vermont AFL-CIO. Service on a state committee with a conflict of interest is no longer an issue in Vermont.
Now is the time to re-finance your existing mortgage or obtain a new one. Mandates will be coming not only from the government but from other sources.
Don Keelan writes a bi-weekly column and lives in Arlington, Vermont.