EPC - ENERGY STAR® Mortgage

What is the ENERGY STAR® mortgage?
The ENERGY STAR mortgage is a simple turn-key extension of the ENERGY STAR brand to any of your own mortgage products as long as they provide two things: 1) a 20-percent reduction in a home’s energy consumption obtained through a Home Performance with ENERGY STAR assessment and improvement process; 2) a net financial “benefit” (cost advantage) to your customer.

How will the ENERGY STAR mortgage be used by your customers?
Your customers will use an ENERGY STAR mortgage to improve an existing or newly purchased home’s energy efficiency, to lower home energy bills, and, for many who are refinancing, to reduce monthly mortgage costs.

How can my bank offer ENERGY STAR mortgages?
Easily! You can become an ENERGY STAR lender by taking three simple actions: 1) Doing business in a state that is participating in the ENERGY STAR Mortgage Pilot Program; 2) Meeting our energy savings, customer net benefit, and financial institution guidelines; and 3) Signing our lending and brand license agreements. Of course, you must be a regulated lender or state-supported loan program, and must be approved by -- and maintain good standing with -- the Energy Programs Consortium.

In which states can I launch an ENERGY STAR mortgage product? Right now, you can offer these mortgages in Maine, Massachusetts, New York, New Jersey, Pennsylvania, District of Columbia and Colorado. If you are interested in offering these in a state not yet on our list, please give us a call.

I already offer rehab loans. Why should I participate in the ENERGY STAR Mortgage Pilot Program?
The ENERGY STAR brand is already recognized by 70% of all Americans. That’s 77 MILLION American households. In addition, our trusted brand is synonymous with “savings” -- an important message today for families seeking to reduce expenses and preserve savings and home investments.

Why are you partnering with private banks to offer ENERGY STAR mortgages?
Our goal is to help homeowners reduce homeownership costs through energy efficiency improvements. We know that, to catalyze this market, homeowners and homebuyers need access to competitive financial products – mortgage products offered by private banks like yours. We also hope to help stabilize your loan portfolios – which can occur through energy and mortgage cost reductions made available to your eligible customers.

Explain the mechanics of how an ENERGY STAR mortgage works:
An ENERGY STAR mortgage incorporates the cost of energy efficiency investments into the total lending package. If the energy work is included in the loan, often through a refinancing, a typical, 30-year term of a mortgage effectively reduces the monthly payments for these improvements (as compared with a straight rehab loan) and can permit the borrower to deduct the full mortgage interest from their federal and state income taxes, further reducing improvement costs.

The energy work can be included in the mortgage, but does not have to be. We know that lenders know best what types of products will meet their customers’ needs for savings. So, we allow the energy work to be accomplished using unsecured loans, state subsidies, public benefit funds or utility supported energy loans, a second mortgage, or grants. Through this flexibility, we allow lenders to use the valuable ENERGY STAR brand in a package the best meets consumers’ needs for savings.

Is the ENERGY STAR Mortgage Pilot a government program?
No. The ENERGY STAR Mortgage Pilot is a public private partnership, sponsored and administered by the Energy Programs Consortium (a nonprofit organization), in partnership with the U.S. Department of Energy, U.S. Environmental Protection Agency, state energy and housing agencies, and with key support from the Ford Foundation and the Surdna Foundation. We know that that a residential energy efficiency market transformation can only occur if government partners with business. So, we’ve removed many of the hassles ordinarily found in government programs in order to let you do the work you do best.

ENERGY STAR itself is a federal government program that is run jointly by EPA and DOE. The ENERGY STAR brand is owned by the federal government. DOE and EPA have allowed EPC to use the brand for the purposes of promoting energy-efficient financing in the residential sector that meets the pilot program's requirements.

Can all my customers participate in the program?
Any person who is an owner or purchaser of single family homes, defined as one-to-four family, owner-occupied homes, may use an ENERGY STAR Mortgage offered by your bank. The program is available to borrowers at all income levels, including lower-income families, for whom we may bundle available public subsidies to achieve even greater cost-savings.

What is the “net benefit” that banks are required to offer?
In exchange for a license to extend our valuable ENERGY STAR brand, participating lenders must provide their customers with a “net benefit” cost advantage, such as an interest-rate discount, reduced loan fees, closing-cost assistance, or another benefit that reduces the cost of the mortgage compared with the financing package that would otherwise be available to that borrower. The benefit must be approved by Energy Programs Consortium, as part of an audit review and pursuant to agreements with the US Environmental Protection Agency (EPA) and the US Department of Energy (DOE).

What do you mean by a pilot program? Will my ability to offer these mortgages expire?
This is considered a “pilot” program because we are only working in a few states. We plan to expand to more states over time. The brand will never expire for mortgages offered under this program.

Who is sponsoring the program?
The Energy Programs Consortium (EPC) is a 501(c)(3) nonprofit organization that conducts policy research and launches and manages transformative demonstration programs affiliated with state energy agencies including: National Association of State Energy Officials, National Energy Assistance Directors' Association, National Association of Regulatory Utility Commissioners and National Association for State Community Services Programs.

I have heard that energy audits are expensive and take a long time. What have you done differently for this program?
Because our mortgage product is based on the achievement of a 20 percent energy savings, ENERGY STAR borrowers must be able to document those savings. Therefore, the home must obtain an energy audit. However, unlike other government programs, we do not mandate a single type of audit nationwide. Rather, we allow borrowers to use whatever kind of audit is approved and available in that borrower’s state. And, by increasing the number and types of audit tools, we have reduced the average audit cost. Some lenders are covering the cost of the audit as part of their benefit. And, some states are offering reduced-cost audits to ENERGY STAR borrowers. We are also permitting the audit cost to be included in the mortgage.

What kind of mortgages can be ENERGY STAR?
The ENERGY STAR Mortgage label can attach to any of your single family, first- or second-mortgage products for owners of existing homes who undergo a Home Performance with ENERGY STAR assessment and improvement process that yields a minimum 20% energy savings. The borrowers can also be owners of homes that can achieve a 20 percent energy savings through weatherization improvements. The mortgage amount is capped at the Fannie/Freddie maximum. The borrower can be a homeowner who wants to improve her existing home’s energy efficiency, or a home purchaser who wants to incorporate energy improvements into the transaction. In addition, you can offer an ENERGY STAR mortgage to any purchaser of a new ENERGY-STAR rated home, without any additional rehab work necessary.

The mortgage can be a stand-alone mortgage containing the improvements, or a mortgage closed simultaneously with a subordinate energy efficiency loan funded via public monies, utilities, or other sources. The first or second mortgage can possess any kind of legally permissible, non-predatory structure, including a fully amortizing fixed-rate mortgage of various terms, a reverse mortgage, or an interest only/amortizing hybrid with a fixed term and adjustable-rate mortgage, as long as the borrower qualifies for the loan at the time of application to its highest adjusted rate and shortest structured term. The mortgage can incorporate available state and other discount programs.

Describe the lender approval, oversight and review process.
Lenders will sign a legally binding agreement to comply with program requirements, and, in exchange, will receive a brand license to use the ENERGY STAR label and logo on products and marketing. On an ongoing basis, EPC will monitor and report to the federal sponsors the lending activity and compliance of the approved lenders. Lenders must annually demonstrate:

Capitalization sufficiency and approved secondary market affiliations.
Capacity, as determined by an EPC review of lender facilities, teams, and systems.
Documented consumer “benefit,” including documentation that any benefit is not offset by an increase in other loan costs.
A RESPA-compliant loan activity review of a statistically significant number of all the ENERGY STAR Mortgages made.

For more information about the ENERGY STAR mortgage Program, please contact:
Howard Banker, Energy Programs Consortium, 202-625-0302 hbanker@energyprograms.org