Creation and subsequent institutionalization of energy efficiency financing (EEF) products linked with home energy rating systems (HERS) are gaining momentum across the nation and, in the process, transforming the housing marketplace by improving the energy efficiency of the housing stock. Energy efficiency financing is a consumer mortgage or home improvement loan that enhances a borrower's ability to qualify based on the increased cash flow gained from a more efficient home. Because energy improvements generally reduce home energy costs more than the increase in the loan payment, lenders can use this effective "added income" to qualify borrowers to finance the costs of the improvements in the larger mortgage loan amount. When these loans are based on a quality home energy rating, lenders can have more confidence that the improvements made will result in a positive cash flow for the consumer.In concert with the U.S. Department of Energy (DOE), the Federal Housing Administration (FHA), the Rural Housing Service (RHS, formerly the Farmers Home Administration), the Department of Veterans Aff airs (DVA), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac), states are supporting the development of EEF products linked with HERS. States in the forefront of these developments include the five selected to pilot a U.S. Department of Housing and Urban Development (HUD) program requiring that existing homes be rated in order to qualify for FHA energy-efficient mortgages (EEMs): Alaska, Arkansas, California, Vermont, and Virginia. In October 1995, HUD extended EEMs to new and existing homes in all 50 states; the DVA program also offers EEMs in all states. In addition, Colorado and Virginia are in the process of piloting a Fann ie Mae program that offers both EEMs and energy improvement mortgages (ElMs).The National Energy Policy Act (EPAct) of 1992 and the Housing and Community Development Act of 1992 required that the Federal Housing Administration (FHA) of the U. S. Department of Housing and Urban Development (HUD) conduct an energy efficient mortgage (EEM) pilot program in five states. In 1993, HUD/FHA selected Alaska, Arkansas, California, Vermont, and Virginia where pilot programs would be implemented to underwrite energy efficient mortgages linked with home energy ratings. In 1994, NREL worked with the pilot states, and representatives of federal agencies and the secondary mortgage markets, to develop a detailed evaluation plan to provide data for use by the states, as well as a cost effective method for aggregating evaluation data at the national level. The evaluation was intended to provide data required by federal statutes and to provide information for states interested in pursuing EEF programs to improve the efficiency and affordability of housing.As a basis for a comparative analysis, NREL and the HERS provider organizations in the pilot states developed case studies documenting EEMs implementation. The evaluation plan, published in 1994, guided the...
