Green Mortgages and Green Mortgage-Backed Securities

K. Thomas Liaw

Chapter 6 in Handbook of Environmental and Green Finance:Toward a Sustainable Future, 2024, pp 175-191 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Energy-efficient mortgages (EEMs) provide incentives for homeowners to reduce carbon footprints to fight climate change. The chapter surveys recent developments in EEMs (also called green mortgages) and green mortgage-backed securities. The chapter examines the association between green mortgages and default risks and property prices. In addition, the chapter discusses the supply of private capital through securitization of green mortgages to modernize houses to reduce energy consumption. For borrowers, the benefits include savings in energy costs, a lower mortgage rate, a larger loan amount, and a higher house value. For banks, the key factor is about risk reduction. We discuss the benefits of such a green movement in the housing sector and document the evidence that green mortgages reduce credit risk for lenders. We also discuss measures by governments, bank regulators, mortgage lenders, homeowners, and investors to move toward the green transitioning of the housing sector.

Keywords: Green and Impact Bonds; Green Banking and Financing; Green Finance in Europe; ESG Performance; Climate Change; Climate Justice; Green Mortgages; Sustainable Transition; Renewable Energies; Green Transition in The EU (search for similar items in EconPapers)
JEL-codes: Q01 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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