Greener homes make energy sense
It's not every day that two cabinet secretaries journey from Washington to Long Island to announce a new national program. But the visit last week by Housing and Urban Development Secretary Shaun Donovan and Energy Secretary Steven Chu made a lot of sense. They announced an effort to cut energy bills by making homes more efficient, and Long Island leads the league both in high energy costs and in initiatives to make homes greener. So the visit was a welcome tip of the cap.
The pilot program, PowerSaver, will extend government-insured loans, through the Federal Housing Administration, of up to $25,000 for energy improvements on homes. The interest rates will be good for what is essentially a second mortgage: locked at 5 percent to 7 percent. And the dollar savings from a more energy-efficient house should help to pay off the debt.
Still, in an era when too many people took on mortgage obligations that they couldn't afford, HUD is prudently making the eligibility criteria for borrowers relatively strict. Those criteria should help make these very safe loans for banks. And the FHA will back 90 percent of each loan, leaving the first 10 percent of the risk for participating lenders. The cost of adding insulation or new windows to make a house tighter can make a homeowner's jaw drop, but some of the loans are too small to attract much banker interest. The government's willingness to assume a lot of the risk can draw more banks in.
An important feature of this two-year pilot will be a study of whether the 30,000 loans it is expected to make (including 4,800 in New York State) result in energy savings -- and the dollar value of savings from those improvements. The loans and the data they help create should act as a catalyst to build a broader green-homes market.
The PowerSaver program is an alternative to the Property Assessed Clean Energy (PACE) approach. The idea is that municipalities -- like the Town of Babylon, a leader in this concept -- help homeowners fund energy improvements, and homeowners pay it back through property taxes. The obligation stays with the house. So, if you make a house more efficient and later sell it, you enjoy the energy-cost savings while you're there, and the new owner reaps those savings and continues to pay back the cost of the retrofit through the property tax bill.
Unfortunately, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, the mortgage giants, didn't like that arrangement. The municipality's lien for the energy improvements takes precedence over the mortgage, and the agency feared that would prove to be a risk for the mortgage lenders. So it started cracking down on loans in areas that were using the PACE approach. Babylon sued. So did California. We hope they win that battle.
While that's playing out in court, there's PowerSaver. Rep. Steve Israel (D-Huntington), a PACE pioneer, called it an "essential interim step." There are also low-interest loans of up to $13,000 for green renovations from the New York State Energy Research and Development Authority. Long Island towns have been at the forefront of green homes, and now they need to continue that activism by helping promote these loans -- until PACE can get back on track.