A group of state energy officials is seeking several changes to the federal PowerSaver program, which aims to offer credit-worthy borrowers low-cost loans to make energy-saving improvements to their homes. A PowerSaver pilot program was launched last November (Green Building Insider, Nov. 15, 2010, "Revisions to Commercial Section of 2012 IECC Approved; Other Energy-Efficiency News Emerges"), and public comments were taken on the initiative last month.
Under the federal plan, low-interest loans of up to $25,000 will be available through the Federal Housing Administration's (FHA) new PowerSaver loan program. Federally insured loans for energy-efficiency upgrades will be available for terms of up to 15 years. Homeowners will be able to use the loans to finance the home improvements of their choice -- including insulation, duct sealing, efficient doors, windows, HVAC systems, and water heaters -- based on a list of proven, cost-effective measures developed by FHA and the U.S. Department of Energy. FHA expects PowerSaver interest rates to be as low as or lower than those associated with comparable financing options and for federal insurance to make the PowerSaver loans "widely" available. FHA is seeking participating lenders for the pilot program and hopes to announce them, and the 10 eligible communities, soon. A U.S. Department of Housing and Urban Development (HUD) spokesperson told Green Building Insider that the agency hopes to be able to share additional details in February or March.
"A primary challenge state energy offices foresee with the proposed PowerSaver program revolves around the issue of coordination with existing state programs," National Association of State Energy Officials (NASEO) Executive Director David Terry wrote in comments submitted to HUD. "Many states operate their own residential energy-efficiency loan programs and incentive programs with rigorous requirements governing the process, evaluation, inspection, and worker certification of home energy-efficiency projects. The introduction of a new program of the type proposed by HUD could prevent equivalent comparisons of projects in jurisdictions where there are already existing residential programs. In the worst case, projects outside of existing state programs such as the proposed PowerSaver could degrade the overall quality or introduce variances in quality of work performed if it is not subject to the same requirements. Under this scenario, verifying information on energy savings, cost savings, and program effectiveness might become difficult.
"Furthermore, coordination among programs is necessary to direct borrowers to the product best suited for them. For instance, low-income qualified homeowners should be directed to the appropriate low-income assistance program even if they apply for a PowerSaver loan. Knowledge of other residential energy-efficiency programs and clear, coordinated messaging by all loan providers will be essential to avoid market confusion. Lenders and the program overall would greatly benefit from increased coordination and reliance on standards, processes, and networks in the community that state programs have already established. Since lenders' core competencies revolve around providing loan information, existing state expertise in predicting and measuring energy savings, quality control and quality assurance, workforce certifications, market research, and outreach and communications can aid lenders interested in offering the PowerSaver loan by filling knowledge and skill gaps. In our members' experience, relieving lenders of these kinds of programmatic responsibilities is critical to attracting lender participation in the programs."
To address this issue and possible benefits of coordination, Terry recommended that the federal government take the following steps:
- Require applicants to work with existing energy-efficiency program administrators.
- Require applicants to submit their proposed pilot plan to existing energy-efficiency program administrators, such as state energy offices, for approval prior to finalization with FHA (within a specified timeframe).
- Require lenders to measure results with a methodology consistent with existing state energy-efficiency programs such as Better Buildings programs.
- Permit state and local energy-efficiency program administrators to apply for the PowerSaver pilot. Experienced energy-efficiency program administrators can design rigorous programs and ensure compatibility with existing programs. At the same time, these program administrators often have strong relationships with their local lenders who they can attract to the pilot.
- Require successful applicants to detail a coordinated customer outreach strategy that involves existing state energy-efficiency program administrators.
- Encourage lenders to take advantage of existing state and local energy-efficiency program infrastructure. For example, rather than identify qualified contractors themselves, lenders could take advantage of lists of contractors previously approved by the state energy office or other energy-efficiency program administrator.
- HUD and FHA should share with state energy offices the lender expressions of interest in their state. This would enable state energy offices to reach out directly to lenders to coordinate and offer expert advice as well as expand program uptake.
Additionally, NASEO offered the following suggestions regarding program design and elements:
- Follow a systematic building science approach with a logical sequence for measures. Prescriptive pathways for both contractors and measures should be provided along with whole-building approaches. This systematic building science approach can be reinforced through tiered interest rates and incentives tied to increasingly more aggressive measures, culminating in a whole-house retrofit.
- Expand pilot program to include multi-family residences. The multi-family residential market is a segment that particularly needs more financing mechanisms to overcome barriers and meet demand.
- Integrate benchmarking into program evaluation. Pre- and post-improvement measurement would enhance quality assurance and program evaluation. Tools such as the free Home Energy Yardstick are available. This is another area where the lender can benefit from drawing on existing state expertise.
- Adjust the loan-to-value (LTV) ratio down from 100 percent. Requiring the homeowner to have more "skin in the game" by necessitating that he or she has equity in the home beyond the value of loans would increase homeowner accountability. This is also in the homeowner's best interest to prevent him or her from going underwater over time if home values decline and reduces the program's overall default risk. Even without an explicit audit requirement, this could be a program policy factor.
- Carefully evaluate lender applications to determine accuracy of interest rate and loan projections for any particular market. In the absence of additional guidance on interest rates offered to borrowers and with the total amount of incentives for any one lender fixed at $5 million, there is the potential that some lenders may anticipate higher loan volumes than can be delivered and also that different lenders could be offering vastly different interest rates to borrowers, with some possibly providing over-subsidization.
- Allow for an automated online appraisal if the resulting LTV is within some safe margin of error. For example, if an online appraisal results in an LTV under a certain threshold (e.g., 80 percent), the bank and homeowner could save the higher cost and longer turnaround time of a physical appraisal.