Study: 'Green' Home Owners Less Likely to Default

March 21, 2013

Home owners of energy-efficient homes are one-third less likely to default on their mortgage, according to a new study released by the University of North Carolina at Chapel Hill Center for Community Capital and the Institute for Market Transformation.

“Consumer and industry acceptance of energy efficiency is high,” says Roberto G. Quercia, one of the author’s of the study. “But the lack of broad consideration of potential energy savings in the mortgage underwriting process still prevents many moderate- and middle-income home buyers from fully enjoying the cost savings. Since our study findings now show that energy efficiency is strongly and consistently associated with lower mortgage lending risk, lenders and policymakers have one more reason to promote it.”

Researchers evaluated 71,000 single-family home loans, originated between 2002 and 2012, from 38 states as well as the District of Columbia to assess the link between home energy efficiency and mortgage default risks. About 35 percent of the homes evaluated were Energy-Star rated for efficiency. 

“It stands to reason that energy-efficient homes should have a lower default rate, because the owners of these homes save money on their utility bills, and they can put that money toward their mortgage payments,” says Cliff Majersik, executive director of IMT. “We long believed this to be the case, and now this study proves it. Successful housing market reforms will require reconsidering the risk factors in mortgage default, including energy costs.”

The study’s authors note that lenders may consider having an energy audit or rating as part of the mortgage underwriting process, given the study's findings. The authors also note that Congress should take the findings into account as they consider legislation such as the SAVE Act, which would promote underwriting flexibility for more energy efficient homes. 

Source: UNC Center for Community Capital and Institute for Market Transformation

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