A green home in the Carsten Crossing development.

Even a casual reader of the business pages has noticed that banks and mortgage lenders are suffering because of the so-called subprime meltdown. During the recent housing boom years, lenders offered many innovative mortgage products that allowed buyers who didn’t meet strict lending ratios to buy houses that would have been out of their reach. Now, problems in that sector are dragging down lenders large and small.

Citigroup (NYSE: C), the largest U.S. bank, warned in early October 2007 that its thirdquarter earnings are expected to decline 60 percent, while Switzerland’s second-largest bank, UBS (NYSE: UBS), reported anticipated thirdquarter losses of up to $690 million. In late October, Merrill Lynch (NYSE: MER) said it would take a loss totaling $8 billion, $3.4 billion of which it attributed to mortgage losses. The mounting industry writedowns totaled more than $20 billion as of late October.

As the dust begins to settle, Sustainable Industries decided to take a look at what’s happening in the newly emerging green mortgage industry.

Today, green mortgages barely even register as a niche in the $10 trillion U.S. mortgage industry. The national Mortgage Bankers Association has conducted no research on the topic; mortgage industry analysts aren’t paying attention; and the big lenders’ offerings aren’t even promoted on Web sites. In part, experts say, that’s because green mortgage benefits need to be better understood by financial institutions and by consumers; there needs to be a widely accepted, clear set of standards for defining green housing; secondary markets for bundled green mortgages need to emerge; lending limits on federal energy-efficient mortgage programs need to be increased; and the mortgage insurance industry needs to play a role.

And particularly in the wake of the subprime meltdown, green mortgages need a track record that shows bankers the bottom-line benefits of lending green.

Right now, the green mortgage is primarily a variation on a nearly 30-year-old. In 1979, President Jimmy Carter put the federal government’s clout behind the idea that homebuyers should get an incentive for buying an energy-efficient house. By the mid-1990s, several banks had begun offering so-called energy-efficient mortgages.