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Next Generation Energy Efficiency Mortgages, Resnet Conference 2010

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This is the presentation I gave on EEMs and EIMs at the RESNET conference in Raleigh, NC on 24 February 2010.

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Next Generation Energy Efficiency Mortgages, Resnet Conference 2010

  1. 1. EEMs & EIMs: The Next Generation Allison A. Bailes III, PhD & Geoff Ferland 24 February 2010, RESNET Conference
  2. 2. Purpose “An EEM recognizes the energy savings of a home that has ‘cost effective’ energy saving improvements that increase the energy efficiency of a home.” -- 1993 HUD Mortgage Letter
  3. 3. New Homes
  4. 4. Improvements on Existing Homes
  5. 5. Improvement Example Summary Existing Home Improved Home Price $200,000 $203,200 Loan Amount $160,000 $162,560 Monthly Payment* $908 $923 Energy Bills $302 $256 True Monthly Cost $1210 $1179 Monthly Savings $31 * 30 year loan, 5.5% interest
  6. 6. What’s the Payback? Cost Simple Payback = Savings $3200 = $552/yr = 5.8 years
  7. 7. Takeaway
  8. 8. Takeaway ✤ Payback is irrelevant!
  9. 9. Takeaway ✤ Payback is irrelevant! ✤ It’s all about cash flow for homeowner/ buyer.
  10. 10. History
  11. 11. History ✤ 1979 Solar Bank proposal
  12. 12. History ✤ 1979 Solar Bank proposal ✤ 1993 HUD Mortgagee Letter
  13. 13. History ✤ 1979 Solar Bank proposal ✤ 1993 HUD Mortgagee Letter ✤ Pilot, 5 states, $8000 cap
  14. 14. History ✤ 1979 Solar Bank proposal ✤ 1993 HUD Mortgagee Letter ✤ Pilot, 5 states, $8000 cap ✤ 1995-2009 HUD Mortgagee Letters
  15. 15. History ✤ 1979 Solar Bank proposal ✤ 1993 HUD Mortgagee Letter ✤ Pilot, 5 states, $8000 cap ✤ 1995-2009 HUD Mortgagee Letters ✤ Restrictions lifted, including $8000 cap (in 2009)
  16. 16. Players & Products
  17. 17. Players & Products ✤ FHA/HUD
  18. 18. Players & Products ✤ FHA/HUD ✤ VA
  19. 19. Players & Products ✤ FHA/HUD ✤ VA ✤ Fannie Mae
  20. 20. Players & Products ✤ FHA/HUD ✤ VA ✤ Fannie Mae ✤ Freddie Mac
  21. 21. Players & Products ✤ FHA/HUD ✤ EEM ✤ VA ✤ Fannie Mae ✤ Freddie Mac
  22. 22. Players & Products ✤ FHA/HUD ✤ EEM ✤ VA ✤ EIM (RESNET term) ✤ Fannie Mae ✤ Freddie Mac
  23. 23. Players & Products ✤ FHA/HUD ✤ EEM ✤ VA ✤ EIM (RESNET term) ✤ Fannie Mae ✤ 203(k) ✤ Freddie Mac
  24. 24. Rater’s Perspective Existing Home Process
  25. 25. Rater’s Perspective Existing Home Process Initial Rating
  26. 26. Rater’s Perspective Existing Home Process Initial Rating Improvement Analysis
  27. 27. Rater’s Perspective Existing Home Process Initial Rating Improvement Analysis Reporting
  28. 28. Rater’s Perspective Existing Home Process Initial Rating Improvement Analysis Reporting Followup Inspection
  29. 29. Cost Effectiveness Time Value of Money $100 of Future Value (e.g., energy savings) is worth less than $100 in Present Value.
  30. 30. Present Value Calculation Single payment
  31. 31. Present Value Calculation Annual payments HERS Standards, pp. 3-10 - 3-12
  32. 32. Present Value Calculation PV = Present Value FV = Future Value i = interest rate n = number of years A = annual savings - maintenance costs
  33. 33. Improvement Example Leaky, old house in Atlanta Reduce infiltration: 7531 cfm50 --> 3766 cfm50 Reduce duct leakage: 1077 cfm25 --> 269 cfm25
  34. 34. Improvement Example Cost for both $3200 Annual savings $551 Maintenance costs $0
  35. 35. Improvement Example Interest rate 5.5% Lifetime 23 years
  36. 36. Improvement Example
  37. 37. Improvement Example PV = $551 * (1- 1/(1+ 0.055)23)/ 0.055
  38. 38. Improvement Example PV = $551 * (1- 1/(1+ 0.055)23)/ 0.055 = $551 * 12.875
  39. 39. Improvement Example PV = $551 * (1- 1/(1+ 0.055)23)/ 0.055 = $551 * 12.875 = $7094
  40. 40. Improvement Example PV = $551 * (1- 1/(1+ 0.055)23)/ 0.055 = $551 * 12.875 = $7094 Total savings over 23 years: $12,673.
  41. 41. Improvement Example Cost Effective?
  42. 42. Improvement Example Cost Effective? PV = $7094
  43. 43. Improvement Example Cost Effective? PV = $7094 Cost of improvements = $3200
  44. 44. Improvement Example Cost Effective? PV = $7094 Cost of improvements = $3200 Net PV = +$3894
  45. 45. Improvement Example Cost Effective? PV = $7094 Cost of improvements = $3200 Net PV = +$3894 Positive ==> Cost effective
  46. 46. Present Value Variables 5.5% 8% 23 years $7094 $5714 10 years $4153 $3697
  47. 47. Present Value Variables 5.5% 8% 23 years $7094 $5714 Higher PV from: 10 years $4153 $3697
  48. 48. Present Value Variables 5.5% 8% 23 years $7094 $5714 Higher PV from: ✤ Lower interest 10 years $4153 $3697
  49. 49. Present Value Variables 5.5% 8% 23 years $7094 $5714 Higher PV from: ✤ Lower interest ✤ Longer lifetimes 10 years $4153 $3697
  50. 50. REM/Rate Improvement Analysis
  51. 51. REM/Rate Improvement Analysis
  52. 52. REM/Rate Improvement Analysis
  53. 53. REM/Rate Improvement Analysis
  54. 54. Reporting
  55. 55. Reporting ✤ Basic info (Address, client name, property type...)
  56. 56. Reporting ✤ Basic info (Address, client name, property type...) ✤ Description of current energy features
  57. 57. Reporting ✤ Basic info (Address, client name, property type...) ✤ Description of current energy features ✤ Description of energy package
  58. 58. Reporting ✤ Basic info (Address, client name, property type...) ✤ Description of current energy features ✤ Description of energy package ✤ Estimated cost, useful life, & maintenance costs of energy package
  59. 59. Reporting ✤ Basic info (Address, client name, property type...) ✤ Description of current energy features ✤ Description of energy package ✤ Estimated cost, useful life, & maintenance costs of energy package ✤ Estimated current & projected energy costs
  60. 60. Reporting ✤ Basic info (Address, client name, property type...) ✤ Description of current energy features ✤ Description of energy package ✤ Estimated cost, useful life, & maintenance costs of energy package ✤ Estimated current & projected energy costs ✤ Estimated annual savings & present value
  61. 61. Reporting
  62. 62. Reporting ✤ Names & signatures of field inspector (if any) and rater
  63. 63. Reporting ✤ Names & signatures of field inspector (if any) and rater ✤ The following certification:
  64. 64. Reporting ✤ Names & signatures of field inspector (if any) and rater ✤ The following certification: “I certify to the best of my knowledge and belief, the information contained in this report is true and accurate and I understand that the information in this report may be used in connection with an application for an Energy Efficient Mortgage to be insured by the Federal Housing Administration of the U.S. Department of Housing and Urban Development.”
  65. 65. Followup Inspection
  66. 66. Followup Inspection From HUD Mortgagee Letter 2005-21:
  67. 67. Followup Inspection From HUD Mortgagee Letter 2005-21: “The lender, the rater, or an FHA fee inspector may inspect the installation of the improvements.”
  68. 68. Barriers to Widespread Use of EEMs
  69. 69. Barriers to Widespread Use of EEMs ✤ EEMs have not been user friendly.
  70. 70. Barriers to Widespread Use of EEMs ✤ EEMs have not been user friendly. ✤ Lenders & underwriters aren’t aware of them.
  71. 71. Barriers to Widespread Use of EEMs ✤ EEMs have not been user friendly. ✤ Lenders & underwriters aren’t aware of them. ✤ Lenders & underwriters don’t understand them.
  72. 72. Barriers to Widespread Use of EEMs ✤ EEMs have not been user friendly. ✤ Lenders & underwriters aren’t aware of them. ✤ Lenders & underwriters don’t understand them. ✤ Realtors are afraid of them.
  73. 73. Barriers to Widespread Use of EEMs ✤ EEMs have not been user friendly. ✤ Lenders & underwriters aren’t aware of them. ✤ Lenders & underwriters don’t understand them. ✤ Realtors are afraid of them. ✤ Homeowners/buyers aren’t aware of them.
  74. 74. PACE
  75. 75. PACE ✤ Property-Assessed Clean Energy
  76. 76. PACE ✤ Property-Assessed Clean Energy ✤ Finances energy improvements through property assessment
  77. 77. PACE ✤ Property-Assessed Clean Energy ✤ Finances energy improvements through property assessment ✤ Stays with the property, not the borrower
  78. 78. ENERGY STAR Mortgages
  79. 79. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios
  80. 80. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios ✤ For homes certified in:
  81. 81. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios ✤ For homes certified in: ✤ ENERGY STAR new homes
  82. 82. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios ✤ For homes certified in: ✤ ENERGY STAR new homes ✤ Home Performance with ENERGY STAR
  83. 83. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios ✤ For homes certified in: ✤ ENERGY STAR new homes ✤ Home Performance with ENERGY STAR ✤ Weatherization Assistance Program
  84. 84. ENERGY STAR Mortgages ✤ Similar to EEMs but without stretch ratios ✤ For homes certified in: ✤ ENERGY STAR new homes ✤ Home Performance with ENERGY STAR ✤ Weatherization Assistance Program ✤ Can be combined with EEM
  85. 85. Architecture 2030
  86. 86. Architecture 2030 ✤ Ed Mazria
  87. 87. Architecture 2030 ✤ Ed Mazria ✤ Includes mortgage rate buydown tied to energy improvements
  88. 88. Architecture 2030 ✤ Ed Mazria ✤ Includes mortgage rate buydown tied to energy improvements ✤ 2.5% interest rate for 75% reduction in energy use, for example
  89. 89. Allison A. Bailes III, PhD Geoff Ferland Energy Vanguard EcoLend 404-428-3393 828-479-LEND (5363) abailes@energyvanguard.com geoff@ecolend.com energyvanguard.com www.EcoLend.com www.facebook.com/EcoLend twitter.com/EnergyVanguard twitter.com/EcoLend www.LinkedIn.com/in/EcoLend

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