Case studies of energy efficiency financing in the original five pilot states, 1993-1996

Abstract

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...

Buildings’ Energy Efficiency and the Probability of Mortgage Default: The Dutch Case

“…In the United States, the history of energy efficiency labels dates back to the early and mid-1980s, when Alaska and California took the first steps towards improving efficiency and affordability of housing in the United States (see Farhar et al 1997). About a decade later, in 1995, the non-profit organisation Residential Energy Services Network (RESNET) took the initiative to develop the Home Energy Rating System (HERS) 4 , and the governmental Environmental Protection Agency (EPA) introduced the ENERGY STAR certification program 5 for newly constructed singlefamily homes.…”

“…Once the mortgages were distributed, the next step was to evaluate the program. The evaluation phase intended, among other goals, also to analyse to what extent a link between buildings' energy efficiency and the mortgage probability of default exists (see Farhar et al 1997;Farhar 2000). The results from this analysis would have been the first of their kind.…”

Buildings' Energy Efficiency and the Probability of Mortgage Default: The Dutch Case

“…In the United States, the history of energy efficiency labels goes back to the early and mid-1980s when Alaska and California took the first steps to improve efficiency and affordability of housing in the United States (see Farhar et al, 1997). About a decade later, in 1995, the non-profit organisation Residential Energy Services Network (RESNET) took the initiative to develop the Home Energy Rating System (HERS) 4 and the governmental Environmental Protection Agency (EPA) introduced the ENERGY STAR certification program 5 for newly constructed single-family homes.…”

“…was to evaluate the program. The evaluation phase intended, among other goals, also to analyse to what extent a link between buildings' energy efficiency and the mortgage probability of default exists (see Farhar et al, 1997;Farhar, 2000). The results from this analysis would have been the first of their kind.…”

Making Homes Part of the Climate Solution: Policy Options To Promote Energy Efficiency

“…The level of activity by consumers in these financing vehicles is largely dependent upon the state policy environment and the home owner's ability to qualify for FHA or VA loans(Farhar et al, 1997).…”