Energy-efficient homes have significantly lower default and delinquency rates than typical homes, according to an internal analysis conducted for a major financial institution last year. Here’s yet another reason why it makes no sense that Fannie Mae and Freddie Mac have effectively killed Property Assessed Clean Energy (PACE), a financing tool that has helped make efficiency improvements affordable for thousands of American homeowners.
Homes built to federal Energy Star standards for efficiency had default and delinquency rates 11 percent lower than other homes, the 2009 analysis found, according to two people familiar with the document. The analysis accounted for variables including income and location, since many new homes are built in sprawling areas (where high transportation costs contribute to foreclosure rates).
“It was a robust statistical analysis that found, with a 99-percent confidence interval, that energy-efficient homes had significantly lower default and delinquency rates,” said one person. Both sources asked to remain anonymous to protect relationships with finance institutions.
Fannie Mae and Freddie Mac have effectively shut down PACE programs around the nation. The programs let homeowners tack the cost of insulation, furnaces, and other efficiency improvements onto their property tax bills, letting them gradually pay off the cost over 10 to 20 years. The tax assessments are “senior” to mortgages, meaning they get paid off first in a foreclosure, which concerns Fannie and Freddie, the government-sponsored mortgage-finance corporations that guarantee more than half of the nation’s mortgages.
A letter from the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, claims PACE programs “pose unusual and difficult risk management challenges” for lenders. But the internal analysis supports what PACE defenders have been claiming — that energy-efficiency improvements, when done correctly, make borrowers more financially stable, not less.
“If you’re Fannie or Freddie, in many ways PACE should be the best tax or assessment you’ve ever seen, because it improves cash flow,” said Cisco DeVries, president of Renewable Funding, a company that sets up PACE programs for cities and counties. “Homeowners are reducing their energy bills. No other assessment does that. For a sewer system [a common use of tax assessments], you have access to sewers, which is great, but it’s not like your cash flow improves.”
The research in the internal analysis does not focus on PACE or other financing methods, but it addresses the core focus of PACE: the energy use of buildings. Most PACE programs require an energy audit and efficiency improvements before funding rooftop solar or wind (since it’s a waste to put solar panels on a leaky building). Buildings account for 38 percent of the nation’s carbon dioxide emissions, so retrofitting them is a crucial near-term step in addressing climate change — with the added bonuses of creating local jobs and cutting utility bills for property owners.