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New Study Finds that Owners of Energy Efficient Homes are Less Likely to Default on Mortgages

Mar 20, 2013

There has always been an assumption by home energy performance advocated that an energy efficient home was a better mortgage investment because an energy efficient home had lower energy bills and was more comfortable to live in.  However, there was no empirical data to back up this assumption until now.

On March 19, 2013, the “Home Energy Efficiency and Mortgage Risks” was released by the University of North Carolina and the Institute for Market Transformation.  The study found that the risk of mortgage default is one-third lower for ENERGY STAR labeled homes that were rated by a certified RESNET Home Energy Rater.  The study also found that a lower HERS® Index Score is associated with even lower risks.

The new report is the first academic study to assess the linkages between residential energy efficiency and mortgage risks.  It used a sample of 71,000 mortgage loans from 38 states and the District of Columbia, all derived from CoreLogic’s mortgage data base.  The sample was restricted to single-family, owner-occupied homes whose mortgages were originated during 2002-2012.  The University of North Carolina was provided the addresses and the HERS® Index Scores by RESNET for the anaylsis.

The report concludes that the lower risks associated with energy efficiency should be taken into consideration when underwriting mortgage loans.  It recommends that Fannie Mae, Freddie Mac and FHA should encourage underwriting flexibility for mortgages on energy efficient homes.  Congress should consider the report’s findings in its deliberations on legislation to improve the accuracy of mortgage underwriting used by federal mortgage agencies by ensuring energy costs are considered in the underwriting process.

The report was released at a news conference and congressional briefing in Washington, DC. In which Steve Baden, Executive of RESNET participated.

RESNET Executive Director Steve Baden commented on the results of the study, “This is a real game changer.  The finding that the lower the HERS® Score, the lower the mortgage risk should increase consumer, builder, lender, real estate agent and appraiser confidence in the HERS® Index Score.  In light of these findings RESNET calls on the mortgage industry to rationalize the underwriting process to take in consideration energy savings in the mortgage loan.”

To download the report go to Home Energy Efficiency and Mortgage Risks  The executive summary of the report can be downloaded at  at Home Energy Efficiency and Mortgage Risks Executive Report