In its first serious effort to address the barriers of financing energy efficiency improvements in existing homes, the U.S. Department of Housing and Urban Renewal (HUD) has selected five states--Alaska, Arkansas, California, Vermont, and Virginia--to participate in an Energy-Efficient Mortgage (EEM) pilot program. By spreading improvement costs over the length of a mortgage, homeowners can immediately achieve a positive cash flow as a result of energy savings.

The program applies to new home purchases, and refinancing of existing loans for one- and two-unit dwellings. Borrowers can roll into the mortgage 100% of the cost of efficiency improvements. The improvements must be cost-effective--their cost must total less than the energy savings over their "useful" life. The improvement costs cannot exceed 5% of the property's value (up to $8,000) or $4,000, whichever is greater. Current Federal Housing Administration (FHA) maximum loan limits can be exceeded by the cost of the energy-efficient improvements.

The program requires that energy improvements and savings estimates be determined by a Home Energy Rating System (see "Home Energy Ratings in California," HE Sep/Oct '93). The rating system must include property inspection, as well as provide recommended improvements, installation cost estimates, and utility cost savings estimates. Ratings may be performed by a utility, a local, state or federal government agency, or a non-profit organization.

The program was mandated by Congress through the Housing and Community Development Act of 1992. HUD is now promoting the program, training its staff, and making lenders and borrowers aware of the program. The pilot will run two years. HUD will later assess if it can be expanded to the rest of the country. Information is available from local HUD Field Offices in the states offering the program.

-- Cyril Penn