It's not easy building Green

MILWAUKEE — Well-qualified borrowers with sterling credit, Eva and Daryl Lehman didn't expect to have a problem getting a mortgage when they set out to build their dream home in Wisconsin's Sheboygan County.

They found that landing a mortgage for the "green"- built home was akin to running headlong into a 12-inch-thick insulated concrete wall.

"On my best day, I couldn't make this up," Eva Lehman said of the process. "I'm not that creative."

The Lehmans are among those being squeezed by a mortgage market that for certain types of new residential construction, including environmentally friendly construction, has become difficult to navigate.

Contributing to the situation are government regulation, cutting-edge green construction technology, risk-averse lenders, and a dearth of comparable home sales on which to base an appraisal.

And it's not just environmentally friendly building at issue.

Real estate appraisers say the housing market remains stubbornly weak, and finding comparable sales data on which to base appraisals is a challenge.

"We have the worst residential real estate market here in over 20 years," said Richard Larkin, owner of Larkin Appraisals in Elm Grove, Wis. "I was active in the early '80s, and this is quite possibly worse."

In the fall of 1981, single-family home mortgage interest rates were 19 percent, he said.

"There was almost no lending going on. It effectively shut down the market," he said. "Now we have an economy that has effectively shut down the market."

Green construction is not immune from the housing downturn. Green building is the practice of creating and using healthier and more resource-efficient models of construction.

"The decline has been very bad for green building," Larkin said.

The problem is often a lack of comparable sales numbers, a necessary and scrutinized part of real estate appraisals, which are done every time a mortgage is granted.

Must justify home price to mortgage buyers

If there are few comparable sales, Fannie Mae and Freddie Mac, the biggest U.S. buyers of home mortgages, won't buy the mortgages from lenders for resale to investors. The companies make up what's known as the secondary mortgage market.

"They're not going to buy the loans unless you can justify the price, and how you do that is by comparable sales," said Kurt Bauer, president and chief executive officer of the Wisconsin Bankers Association.

That's become difficult.

"It's very tough to do a new construction appraisal right now, whether it's green or not," Larkin said. "There's just such a lack of data because the activity is so low."

"We're even running into problems on traditional homes, where the underwriting standards have become so strict. What may have been a qualified buyer a couple years ago is having problems getting a loan," said Donald Chudnow, co-owner of Chudnow Druck Valuation Inc., a residential real estate appraisal service in Glendale, Wis., and a 33-year veteran appraiser.

"Almost any unusual property, where it's difficult to find comparables, the secondary market doesn't even want to see it," he said.

So, while the federal government dangles lucrative tax credits to encourage green housing construction, its efforts to regulate a lax home lending market can make it tougher to get a mortgage for such a house.

"Welcome to our world in banking, when you have one arm of the government telling you one thing and another arm of government telling you something else," Bauer said.

Folks like the Lehmans end up stuck in the middle.

The Lehmans are having an insulated concrete form home built, complete with a geothermal heating and cooling system. With excellent credit scores and a 20 percent down payment ready, they contacted four lenders before they found one, Associated Bank, willing to make the mortgage loan. To get the loan, they had to boost their down payment by 10 percent.

"Everyone's in a defensive mode right now," said their mortgage loan officer, Dave Gehringer. "Appraisers are in defensive mode. Underwriters are in defensive mode. I think what is exacerbating this is the guidelines that are imposed on lending institutions."

Obtaining a loan has been frustrating.

"Three years ago, they were making loans to people who were not qualified for a loan to buy a pack of gum," Eva Lehman said. "Now that people who shouldn't have been getting the credit screwed up, the people who should be getting the credit today are the ones being penalized. That, to me, is the most frustrating."

This story was originally published June 3, 2010 at 10:04 PM with the headline "It's not easy building Green."