Home Energy Efficiency and Mortgage Risks

Design, Financial, Policies

As part of President Barack Obama’s Climate Action Plan, the Obama administration proposed that energy efficiency should be factored into mortgage underwriting upon the sale or refinancing of new and existing homes. Little empirical evidence, unfortunately, exists on the relationship between energy efficiency and mortgage risks. The study examined the performance of mortgages backed by ENERGY STAR certified homes, using a unique dataset. The results show that default and prepayment risks are significantly lower in such certified homes. These results offer support for considering energy efficiency in the mortgage underwriting process.