PowerSaver Loans: A Federal Housing Administration Pilot Program for Residential Efficiency and Renewable Energy
In his “Recovery Through Retrofit” report on Nov. 9, Vice President Joe Biden announced a home loan pilot program, managed by the Federal Housing Administration (FHA), which would help homeowners make energy efficiency and renewable energy improvements to their homes.
Federally Insured Loans Available for Home Improvements, Equipment
The program, called PowerSaver, would make federally insured loans available through approved lenders in the private sector, primarily for energy efficiency improvements to homes, but also for residential renewable energy equipment.
The 2010 Appropriations Act’s Energy Efficient Mortgage Innovation pilot program appropriated $25 million for FHA to provide incentives to support participating lenders and to evaluate program performance. Currently, the FHA is seeking lenders to participate in the pilot. The FHA hopes to announce participating lenders, geographical areas for availability and final pilot structure in early 2011.
Going Beyond the Property Improvement Program
The two-year pilot program is based on the existing Title I Property Improvement Program, which already makes FHA-backed loans available for general home improvement. PowerSaver loans would focus on energy efficiency and renewable energy home improvements, and would have some additional requirements:
- The federal insurance of the PowerSaver loans would ensure that interest rates on the loans would be equal or less than those of other comparable financing options.
- Reasonably strict credit rating requirements (expected to be a FICA score of 600), borrower debt-to-income ratio limits, and property appraisals would seek to limit the risk of defaults and help keep interest rates lower.
- Premiums are expected to be 1 percent of the loan amount, paid annually for terms of up to 20 years.
- Liens on property would always be in a secondary position behind a mortgage (unless there is no mortgage), but could not take a tertiary position if other secondary liens existed; the loan would have to be paid off if a participant sold the home.
Who and What is Eligible
At least for the pilot, PowerSaver will only be available to homeowners of detached single-family non-manufactured houses.
Projects eligible for FHA PowerSaver loans include:
- Whole-house air sealing measures
- Attic, wall, and crawl space insulation
- Duct sealing
- Skylight and door replacement
- Storm doors and windows
- Efficient heating systems (boilers and furnaces)
- Geothermal heating and cooling systems
- Efficient water heaters (gas, propane, electric and solar)
- Fuel cells and micro turbine systems
- Solar photovoltaic panels
- Wind turbines of no more than 100kW
- Metal or asphalt roofs to reduce heat gain
Various eligibility standards for efficiency and performance apply to these projects, listed in Appendix B of the FHA’s notice.
The FHA, along with the Government National Mortgage Association (“Ginnie Mae”), hopes to encourage a secondary market in PowerSaver loans, allowing primary lenders to sell the loans on the secondary market, as is normally the case for mortgage loans.
For more information
UPDATE: On April 21, 2011, HUD annouced the eighteen lenders who will participate in the pilot program. The HUD press release lists those selected. The loans of up to $25,000 are expected to finance energy efficiency upgrades for around 30,000 homes and to create around 3,000 jobs.
