New Lender Guide Unlocks Potential for Efficiency Upgrades

The Community Preservation Corporation (CPC) has released a first-of-its-kind handbook that shows lenders how to identify and fund energy and water efficiency upgrades as part of their standard mortgage lending process.

This new resource will help facilitate efficiency upgrades in affordable housing and represents an important first step towards making this a standard industry practice.

Apartment building owners face steep costs to maintain and operate their properties. Owners often have limited ability to lower operating expenses such as insurance and staff, but owners do have the potential to significantly reduce one major operating expense—utility bills.

Studies¹ have found that the average apartment building can cost-effectively reduce its electric and fuel expenses by 15-30 percent and water expenses by 15-50 percent. However, many owners, especially those of affordable housing, face barriers to making the upfront investments to achieve such savings, including lack of available and affordable capital and insufficient time to dedicate to an efficiency retrofit project.

There is an opportune time for efficiency upgrades, and that is when owners acquire or refinance properties, which often involves obtaining a mortgage and investing in property upgrades. When capital is available, energy and water efficiency can be incorporated along with other building upgrades. Plus, by underwriting to future energy savings lenders can often provide additional funds to cover any added costs from efficiency work.

Despite such opportunities, incorporating efficiency into the mortgage underwriting process is not a common practice. CPC set out to change that in 2015 by committing to underwriting future utility bill savings from efficiency upgrades into the mortgages they provide. To support this endeavor, CPC set out to create a handbook to help their mortgage officers understand the most effective ways to incorporate efficiency into their work.

Recognizing that a lack of efficiency knowledge was a barrier to internal progress, as well as a significant barrier to broader adoption of efficiency underwriting, CPC partnered with Energy Efficiency for All and several other organizations to develop an efficiency training tool for lenders.

To build this tool, CPC harnessed the expertise of lending institutions, building owners, and efficiency experts and developed a comprehensive guide: Underwriting Efficiency: A Mortgage Lender’s Handbook for Realizing Energy and Water Efficiency Opportunities in Multifamily Housing that provides lenders with the guidance they need to systematically include energy and water efficiency opportunities in their standard lending practices.

The handbook includes performance benchmarks for water and energy consumption to help underwriters and building owners identify opportunities for efficiency improvements. It also includes a checklist that identifies the costs and benefits of a range of upgrades, from simple, low-cost measures such as weather-stripping, to substantial changes such as replacing a heating system. Finally, a step-by-step guide helps underwriters effectively integrate efficiency measures into each phase of the loan process.

Efficient buildings save money for owners and reduce the risk of delinquency for lenders while improving living conditions for residents and reducing carbon pollution. But it takes expertise and collaboration across multiple disciplines to capitalize on this opportunity.

With this new guidebook, CPC and partners are helping bridge a critical knowledge gap that can free up capital for efficiency improvements for affordable housing. They are also helping to create a model that can easily be adapted to mortgage lenders anywhere in the country, and ultimately, help expand the benefits of energy efficiency to millions of low-income families across America.