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Home Energy Efficiency and Mortgage Risks: Research funded by the Institute for Market Transformation

March 12, 2013

Many have theorized that energy efficient homes should have lower default risks than standard homes because the former are associated with lower energy costs, which leaves more money to make the mortgage payment. However, few empirical studies have been conducted due to limited data availability. This study examines actual loan performance data obtained from CoreLogic, the lending industry's leading source of such data. To assess whether residential energy efficiency is associated with lower default and prepayment risks, a national sample of about 71,000 ENERGY STAR- and non-ENERGY STAR-rated single-family home mortgages was carefully constructed, accounting for loan, household, and neighborhood characteristics.The study finds that default risks are on average 32 percent lower in energy-efficient homes, controlling for other loan determinants. This finding is robust, significant, and consistent across several model specifications. A borrower in an ENERGY STAR residence is also one-quarter less likely to prepay the mortgage. Within ENERGY STAR-rated homes, default risk is lower for more energy-efficient homes. The lower risks associated with energy efficiency should be taken into consideration when underwriting mortgages.

Energy Transparency in the Multifamily Housing Sector

December 1, 2012

Mirroring recent trends in other real estate sectors, the multifamily housing sector is subject to an increasing number of rules and regulations related to energy-performance benchmarking and performance disclosure. State and local governments are moving rapidly to institutionalize benchmarking and make energy performance information available in the real estate marketplace, while major lending institutions are taking initial steps to factor building energy performance into financial products. The goal of these new rules is to enable transparent building energy-performance information to drive energy efficiency improvements in multifamily housing that lower energy bills for residents; contribute to greater local housing affordability; and new jobs and services related to energy efficiency. Many multifamily owners and operators have never benchmarked the energy performance of their buildings, while other parties -- including state, local, and federal policymakers, tenants, utilities, and lenders -- have little or no access to building energy-performance information that can help shape real estate decisions or inform the development of policies, incentives, and financial vehicles to advance energy efficiency. This critical shortage of information about building energy performance has prevented property markets from valuing energy efficiency and severely undermined both public and private efforts to increase the energy efficiency of multifamily housing.While energy benchmarking and disclosure policies are an innovative approach to overcome energy-performance information gaps in the multifamily sector, several challenges must be addressed. The multifamily sector is fragmented and resists a one-size-fits-all approach, ranging from low-income public housing to luxury properties, all with varied sources of public and private financing. Policies must reflect and accommodate the diversity of both the building stock and its stakeholders. In many cases, underlying barriers continue to limit the ability of many multifamily owners to conduct benchmarking and other energy-performance assessment measures. This report is intended to serve as a guide for policymakers and multifamily stakeholders on benchmarking and disclosure rules and regulations. It provides an introduction to the multifamily housing sector, followed by a thorough review of existing benchmarking and disclosure policies and an assessment of continuing policy challenges and opportunities.