Mortgage lending executive Don Worthington explains to Green Builder Media's Sara Gutterman how counting a household's utility payment inside the mortgage unlocks tens of thousands of dollars of buying power. He makes the case that this reframes efficiency, electrification, and solar as value rather than added cost per square foot.
00:00:03:22 - 00:00:27:22
Sara Gutterman: I've really been, trying to facilitate a conversation around a shift in the valuation metric from price per square foot to value per square foot. And in order to do that, we really have to take the onus off of builders, to solve for affordability challenges in the market, regardless of what where they kind of build in terms of price points or geographies.
00:00:27:25 - 00:00:54:18
Sara Gutterman: Because, what we don't want is sustainability, energy efficiency, electrification, solar plus storage tied to costs, their cost per square foot, and rather have all of those things integrated into enhanced value for home buyers. And you've really come up with a solution that is unique, in addressing that very thing from a mortgage and a lending standpoint.
00:00:54:18 - 00:01:04:22
Sara Gutterman: So first on, can you talk about the philosophy that drove you to create volatility and then maybe just talk a little bit about what you motility is.
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Don Worthington: And I'm going to answer that probably a bit by telling a story. And that story is actually my next door neighbor. She knew I was in the mortgage and was in the residential space, and she knew I kind of shared this passion for renewable energy. And so she had added solar to her house. And and again, this is years ago this is about seven, eight years ago.
00:01:22:09 - 00:01:40:00
Don Worthington: And so it's kind of very early in the phase of renewable energy. And renewable energy financing. But she we were out, you know, across the fence being neighbors. And she said, hey, Don, can you help me out? I'm really worried about this. And like, if something doesn't change, I might not be able to keep my house. I might have to make a change.
00:01:40:02 - 00:01:57:08
Don Worthington: And what had happened is the person that had knocked on our door and the financing that was promised versus what she got at the time was very, very different. But what it enabled me to do is really it was this motivation because it was somebody that I cared about to really kind of get up and look under the hood.
00:01:57:10 - 00:02:14:28
Don Worthington: And so when I got up and I looked under the hood, I was like, wait a second, there's some not great things here. But at the same time as finding things that weren't great. And when I say not great, but at the time there was prepayment penalties for her solar financing. There was adders. It was tax credits. There was all these different things.
00:02:15:00 - 00:02:32:08
Don Worthington: Her payment, what she thought was going to go to X was Y. And and a lot of those things have been solved. But really what it opened my eyes to was the bigger problem and the bigger opportunity. And so that journey that kind of like piqued my curiosity. We the bank that I work for, we service a lot of our mortgage.
00:02:32:14 - 00:02:55:14
Don Worthington: So as homeowners make their payments to us, I started kind of diving into some of that servicing data, and we looked at, I looked at, hey, you know, homeownership is more than a principal and interest. Most of the times when we buy a house, we think about what's my mortgage payment, what's my interest rate. And when we step back and we looked at loan performance and I said, wait a second, utility costs.
00:02:55:14 - 00:03:16:18
Don Worthington: We're always going to make some sort of utility payment when we own a home. Why don't banks consider utility payments in their and you know, so we kind of uncover that started looking at it. We looked at loan performance. We looked at home affordability. Right. And we looked at you know, are we putting you know, generally speaking we want to do what's right for the homeowner.
00:03:16:18 - 00:03:36:04
Don Worthington: The more we help the homeowner, the better business practice it is. We're didn't plan to be in business for a long time. So at the core, it's how do we take care of that? So as we looked under the hood, it caused us to kind of just reevaluate housing affordability budgets. What are we considering and what are we not considering.
00:03:36:07 - 00:03:57:21
Don Worthington: And that's kind of where we created a product. We call it utility is kind of our white label name for our product. And it's very simple because a bunch of bankers put it together and it's basically we looked at it if there's improvements that will lower utility costs, motility, if a lower utility costs, why not include those into their mortgage?
00:03:57:24 - 00:04:18:18
Don Worthington: We're already doing the due diligence on if a homeowner or a home buyer can make their payment and what we wanted to avoid. We saw a percentage of homeowners that would buy a house or move into a house, and then once they got into a house, they would add renewable energy financing on top of it. And a lot of that came with liens and loans and things like that.
00:04:18:21 - 00:04:47:27
Don Worthington: And at the time, a lot of those were kind of borderline predatory, in my opinion, with some of the adders and things that they did. So for us, we just said, hey, let's look at it, let's reevaluate it. We created a new product where for us and on affordability, let's take into consideration utility payments, and let's give a homeowner not just the money to buy the house, but let's give the homeowner the money to electrify a house or to reduce their utility payments.
00:04:48:00 - 00:05:22:08
Don Worthington: And when we look at mortgage payments instead of pity, but pity plus utility payments, we realize there's a whole bunch of buying power that is sitting there. There's a bunch of opportunity. So kind of set a different way, you know, salary. If a homeowner were to think of their utility payment, whether that's electricity, whether that's gas, and electricity, if they were to think of their utility payment as if it was a loan payment, how much money would that be?
00:05:22:10 - 00:05:53:19
Don Worthington: And so, like today, if you take a $300 utility payment, that's the equivalent of like $50,000 of buying. And so what our loan product is that we create, it is we turn that utility payment into buying power. And then we let the homeowner buy a house and use that money to make it more energy efficient. And what we find is there's a perception.
00:05:53:19 - 00:06:21:03
Don Worthington: In reality, the perception is sustainability is more expensive. And what people don't realize is we unlock that buying power, that buying power to electrify a house to make it more sustainable has been sitting there underneath all of our noses this whole entire time. But now we're trying to change that narrative, that sustainability should equal affordability, that it shouldn't, that perception that an energy efficient house should be a more expensive house.
00:06:21:03 - 00:06:33:07
Don Worthington: This is completely a false narrative. So a little bit of a ramble there on different things, but that's a little bit of the story of how I got there, what we uncovered and what what it led to from an opportunity perspective.
00:06:33:09 - 00:07:09:27
Sara Gutterman: So let's go back to this concept of buying power. Can you walk us through the math about how, you know, kind of palatability, unlocks this buying power and what that does enable, the home buyer to afford. And then also, can you talk about benefits for builders and how builders can you you can use this unlocked buying power to drive sales and maximize ROI and actually boost their profits.
00:07:09:29 - 00:07:29:21
Don Worthington: Your utility payments. And again when I say utility gas or electric, right. If you didn't have to make that utility payment, right, and you turned that into a loan payment, what money would that for you? And so that I'm going to use a $300 as an example. It's it's a pretty round number. It's a lot of markets. It's that's what it is.
00:07:29:23 - 00:07:51:01
Don Worthington: So a home buyer and I'm giving you some round numbers here. The home buyer. Let's pretend they had $1,000 mortgage payment and a $300 utility payment. Well when you add those two together, they're living in that house. They're cost to live in. That house is $1,300 mortgage payments plus utility payments. So what we basically said, well, what if they didn't have to make a utility payment?
00:07:51:03 - 00:08:16:23
Don Worthington: And what if we just combined that $300 utility payment into their mortgage payment? How much more buying power? So by increasing that monthly, you know, taking that utility payment and putting into their mortgage, we're able to loan that person with a $300 utility payment, an extra 5050, almost $55,000. So if you were to look at a homeowner, one, they both are paying the exact same amount of money.
00:08:16:26 - 00:08:48:05
Don Worthington: The homeowner that's paying $1,300 and 300 of that is going to the utility company would only be able to borrow about $55,000 less. A person who includes it into it uses that buying power is able to basically borrow an extra $55,000, and they would both have the exact same monthly payment. So then the question becomes, okay, if I can get an extra $55,000 for the exact same monthly payment, what are the features that I would add to my house if somebody gave you what?
00:08:48:05 - 00:09:08:14
Don Worthington: I'm not going to increase your monthly payment, but I'm going to give you an extra 50 grand. What improvements would you make? And from a builder's perspective, what we're saying is a lot of these builders are going, wait a second, you mean for the exact same monthly payment, a home buyer can get $50,000 worth of equipment, and the builder doesn't have to pay for it, right?
00:09:08:14 - 00:09:34:09
Don Worthington: And it doesn't increase the homeowner's monthly cost. So what we're seeing from a homeowner's perspective, imagine you have the exact same house, right? One house came with elect was was 100% electrified, but yet they both have the same monthly payment. We're seeing a lot of home buyers are gravitating. They're future proofing their house. We're seeing them. You know, they're basically like, well, I can be an energy efficient 100% electric for the exact same monthly cost.
00:09:34:12 - 00:09:55:20
Don Worthington: And so that's where we're seeing home builders use it as, as kind of the honey to differentiate themselves, to attract home buyers to them, to their, to their houses because they're providing more value. We talked about in the beginning, you mentioned value per square foot. And really what you're talking about is most home buyers are asking, what's my monthly payment?
00:09:55:23 - 00:10:14:13
Don Worthington: Right. How much money out of pocket do I have to come up with to buy a house? But more so what do I get that value? What do I get for that payment? And so that's where I think we with the value component for a home buyer or a builder or a homeowner, is the money that's going to a utility company right now.
00:10:14:16 - 00:10:36:21
Don Worthington: There's a lot of inefficiencies. There's a lot of waste. So what this does is it empowers a home buyer in every market. Today they should be shopping how they power their home. Should I you know, a builder should give the homeowner the opportunity. Should you buy your power from a power company? Should you rent it from a finance company that has solar panels on your roof?
00:10:36:21 - 00:11:03:10
Don Worthington: Or should you? Should you just own the equipment on the house? Should you turn your house into your own mini virtual power? There's all sorts of things we can do, right? So so that value of how do we help a homeowner maximize their housing budget, is kind of where we try to find that value. There's a lot of wasted money trapped inside of utility companies that can be used to electrify a house, if that makes sense.
00:11:03:12 - 00:11:29:17
Sara Gutterman: For sure. And I think that, you know, low till, at least flexibility, by installing improvements after closing through escrow hold backs really makes it easier for homeowners to adopt new technologies on their own terms. You know, you're not necessarily dictating specific upgrades, but, you're empowering those home buyers to, you know, make decisions that are best for themselves.
00:11:29:20 - 00:11:49:20
Don Worthington: You're exactly right. One market in Washington is different than in Arizona is different than a Florida. You know, so so home buyers, you set up perfectly, Sarah, in that hey, we're going to unlock this buying power. What do you want to do with it. How do you want to spend it. What can we do to help you have a more energy efficient, sustainable house?
00:11:49:22 - 00:11:54:28
Don Worthington: And we give that opportunity to home buyers or builders to help create opportunities for homeowners.