Despite consumers’ growing awareness of the benefits of energy efficiency upgrades, a lack of financing options is still preventing homeowners from pursuing these sorts of improvements.
The state of New York is working to overcome this barrier by providing New Yorkers with expanded access to low-cost financing for energy upgrades. The Green Jobs - Green New York (GJGNY) Program, operated by the New York State Energy Research and Development Authority (NYSERDA), is using innovative underwriting criteria to help more homeowners obtain financing to participate in the state’s Home Performance with Energy Star (HPwES) program.
The need to expand financing options is keen. In recent years, about 30% of loan applications to NYSERDA for HPwES work were rejected. The new financing option offers an important alternate financing route for people who demonstrate fiscal responsibility to pay for energy upgrades, but may not qualify through a traditional credit score analysis.
In November 2010, NYSERDA began applying two tiers of underwriting standards to qualify applicants for unsecured loans in amounts ranging from $3,000 to $13,000, for up to a 15-year term, at an initial interest rate of 3.99%. The Tier 1 standards still apply traditional credit scores criteria. However, the Tier 2 standards use consistent utility bill and mortgage payments as a benchmark to determine whether or not a borrower qualifies.
The Tier 2 financing provides an option for people who did not qualify for Tier 1 financing but earned too much to qualify for New York’s Weatherization Assistance Program.
In addition to providing additional financing opportunities, this two-tier program will act as a de facto study of this sort of program’s effectiveness, and will provide insight into a variety of yet-unresolved issues, such as:
- Will Tier 2 households assume debt to finance energy upgrades?
- Can these households afford the additional debt?
- Do the Tier 2 standards effectively determine creditworthiness?
- Will investors invest in bonds that bundle loans originated under both Tier 1 and Tier 2 standards?
- Will the energy upgrades save Tier 2 households money?
The first 90 days of the program have already provided some insights. In that time, even though applicants were notified that they can apply for a Tier 2 loan if rejected for a Tier 1 loan, not one of the denied Tier 1 loan applicants re‑applied for a Tier 2 loan. Follow-up calls revealed that a more streamlined application process and assurance that the loan terms are identical for both loan tiers would act as incentives for applicants to re-apply. This program will continue to be watched closely for how expanded credit opportunities may impact the home energy upgrade market.
More details on the GJGNY program are available by accessing the original policy brief.
Content for this Blog post courtesy of Merrian Fuller, Lawrence Berkeley National Laboratory