Can We Make our Homes Energy Efficient without Radical Changes to Lending Practices? Part 2
In the first blog on this topic, I gave an overview of the UNC Center for Capital Research Report – Home Energy Efficiency and Mortgage Risks.
This second blog addresses the Report’s findings regarding financing energy efficiency and the challenges that face consumers when seeking additional dollars to make energy upgrades in their homes.
According to the Report, the U.S housing stock is valued at about $14.5 trillion. To even devote 2% to energy efficiency improvements would require an investment of nearly $300 billion. While there are federal, state and local energy efficiency loan funds and other mechanisms in place to provide assistance, they can’t possible cover what is required.
The most widely used mechanism is direct borrowing in the form of consumer loans, home equity loans and traditional or specialized mortgages. Most of these financing options require consumers to have either substantial equity in their existing home, the personal reserves to pay any added costs out-of-pocket or larger down payments for a home purchase. Many homeowners have seen the equity in their homes diminish over the last few years due to the struggling economy.
For many first-time homebuyers or moderate-income borrowers who do not have these financial resources there are energy-efficient mortgages (EEM) which offer lenders flexibility in the debt-to-income and other underwriting considerations so borrowers can qualify for larger loans or lower interest rates. However, few lenders currently offer these.
If we are going to see significant improvement in the retrofitting of existing buildings for energy efficiency, owners need to be incentivized. This usually manifests itself as access to affordable capital. While it is a good start, it is not enough to offer tax incentives especially for homeowners who do not have cash resources to make some of the more pricey upgrades to older homes.
This debate is going to Capitol Hill and groups like the Residential Energy Services Network (RESNET) are lobbying to encourage underwriting flexibility on energy efficient homes and to promote energy efficiency to consumers – particularly for moderate- and middle- income borrowers seeking financing for energy efficient upgrades.
It’s apparent that business as usual will not get us where we need to go. This Report is a reminder of a prevailing situation that continues to be raised but not resolved. Is there money available that we don’t see? Are there resources somewhere that could be re-allocated to move the green needle and help moderate- and middle- income borrows obtain the financing needed to make necessary energy upgrades?
We, as consumers, cannot strive to be sustainable nor can cities strive to be the ‘greenest’ cities without resources to make this happen. Are the gloves off? Can we really move the needle this time?