Freddie Mac has taken a big step toward offering a green rehab mortgage, thanks to a partnership with the Community Preservation Corporation (CPC).

The organizations recently announced a $1 billion green financing initiative to offer construction and mortgage loans to multifamily owners pursuing energy-efficient upgrades and retrofits. Half of the funds come straight from Freddie Mac.

The question of how lenders account for energy-efficient upgrades in their underwriting has never been answered, but this pilot program may point the way. Freddie Mac has struggled with this question for years in trying to come up with a green rehabilitation mortgage product.

“Ever since I came to multifamily, I’ve been talking to people about how to do green mortgages,” says Mike May, senior vice president of McLean, Va.-based Freddie Mac’s multifamily division. “We talk a lot about it but we’ve never done anything about it until now.”

The biggest problem holding lenders back is a lack of reliable data. While upgrading an HVAC system or replacing windows certainly leads to cost savings, lenders pause when underwriting any additional NOI in the absence of clear metrics.

But this pilot program will monitor the long-term effects of green retrofits to measure their efficiency in conserving heating fuel, electrical and water usage, providing a base for calculating future savings. “This is really about data collection, so we understand exactly the impact that certain upgrades will bring,” May says.

A resulting green mortgage product is still far off since it will take awhile for the numbers to be compiled. But the data collected by CPC will be the basis of Freddie Mac’s efforts to offer a green mortgage product in the future.

“This is something where I can actually clearly see what I need to get comfortable to create a national program,” May says. “Once we have confidence that there will be a 5 percent reduction in this or that expense, we can create a green rehab program using those statistics to underwrite the future NOI.”

CPC, a nonprofit affordable housing lender for New York and parts of New Jersey and Connecticut, hopes the program will become a model for other regional initiatives. The organization’s “realistic goal is to increase fuel and electrical efficiency of existing apartment buildings by 20 percent or more,” says Michael Lappin, New York-based CPC’s president and CEO.

The program will target low-, moderate-, and middle-income multifamily buildings. The funds will be enhanced by a variety of subsidy programs, including tax abatement and exemptions, and government-provided grants and low-cost secondary loans.

Other funding sources for the program include $300 million from the New York State and New York City public employee pension funds, and about $200 million from private lending institutions.