A study released March 19 by the University of North Carolina Center for Community Capital shows that owners of energy-efficient homes have a much lower mortgage default risk than owners of conventional residences. The default rates between energy-efficient and conventional houses can differ by as much as 33 percent.
The report also revealed that homes with an Energy Star rating were 25 percent less likely to prepay on loans, which makes these loans more profitable for lenders.
The study indicated that mortgage lenders and servicers could benefit from including an energy audit as part of the mortgage underwriting process and offer more underwriting flexibility for energy-efficient homes. The money homeowners save on energy costs often is rerouted into mortgage payments.
The report noted that U.S. homeowners spend $230 billion each year on energy with residential costs accounting for about 20 percent of total energy consumed.
Robert Quercia, one of the study’s authors, noted that servicers’ failure to address savings in energy- efficient home purchases prevents many middle-income borrowers from fully benefiting from the cost savings of purchasing a more sustainably built and operated home.
Quercia urged Congress to consider the impact of energy-efficient homes when working on changes to mortgage underwriting legislation.
The UNC study was based on a sample of 71,000 mortgages originated between 2002 and 2012 in 38 states and the District of Columbia through data provided by analytics firm CoreLogic. Some 35 percent of residences in the study had Energy Star ratings.
In keeping with the study’s push for an expanded review of energy-efficient features, the Appraisal Institute released its enhanced Residential Green and Energy Efficient Addendum March 7. The form is designed to assist in the valuation of energy-efficient home features.
Read the full UNC report.