Understanding and Overcoming the Energy Mortgage Barrier: Financing Energy Improvements in Existing Homes

Richard Faesy, Energy Rated Homes of VT / Vermont Energy Investment Corporation

Keywords

Abstract

Helping consumers finance home energy improvements as part of their mortgage on existing homes has been a challenging endeavor. In 1999 the total residential mortgage market was 13 million loans; less than 1/10 of 1% of these incorporated an energy efficiency component (Farhar, 2000).

Success with energy improvement mortgages (EIMs) is limited to the few contractors astute enough to understand the market potential, become educated in mortgage financing and create a new business model to “facilitate” EIMs. Our organization has created and implemented a new model that does not necessarily rely on such contractors, has succeeded at selling and financing a significant servicing fee, and has gained an understanding of the motivations of lenders and home buyers to make EIMs happen. At the same time, we have been able to create consumer demand.

This paper reviews the obstacles surrounding the use of EIMs, identifies “problemsolving” opportunities for these nationally-available but scarcely-used products, and provides a description of the successful implementation of EIM services by an independent, noncontractor organization. Research on the attitudes and motivations of participating mortgage lenders, along with quantitative impacts of completed EIMs are presented. The paper covers the “turn-key” services, including customer sales, a home energy rating, lender liaison, contractor selection, and contract management. The paper concludes with a model for replication of the EIM service elsewhere.