This is the presentation I gave on EEMs and EIMs at the RESNET conference in Raleigh, NC on 24 February 2010.

1. EEMs & EIMs:
The Next Generation
Allison A. Bailes III, PhD & Geoff Ferland
24 February 2010, RESNET Conference

2. Purpose
“An EEM recognizes the energy savings of a home that
has ‘cost effective’ energy saving improvements that
increase the energy efficiency of a home.”
-- 1993 HUD Mortgage Letter

3. New Homes

4. Improvements on Existing Homes

5. Improvement Example
Summary
Existing Home Improved Home
Price $200,000 $203,200
Loan Amount $160,000 $162,560
Monthly Payment* $908 $923
Energy Bills $302 $256
True Monthly Cost $1210 $1179
Monthly Savings $31
* 30 year loan, 5.5% interest

6. What’s the Payback?
Cost
Simple Payback =
Savings
$3200
=
$552/yr
= 5.8 years

7. Takeaway

8. Takeaway
✤ Payback is irrelevant!

9. Takeaway
✤ Payback is irrelevant!
✤ It’s all about cash flow for homeowner/
buyer.

10. History

11. History
✤ 1979 Solar Bank proposal

12. History
✤ 1979 Solar Bank proposal
✤ 1993 HUD Mortgagee Letter

13. History
✤ 1979 Solar Bank proposal
✤ 1993 HUD Mortgagee Letter
✤ Pilot, 5 states, $8000 cap

14. History
✤ 1979 Solar Bank proposal
✤ 1993 HUD Mortgagee Letter
✤ Pilot, 5 states, $8000 cap
✤ 1995-2009 HUD Mortgagee Letters

15. History
✤ 1979 Solar Bank proposal
✤ 1993 HUD Mortgagee Letter
✤ Pilot, 5 states, $8000 cap
✤ 1995-2009 HUD Mortgagee Letters
✤ Restrictions lifted, including $8000 cap (in 2009)

16. Players & Products

17. Players & Products
✤ FHA/HUD

18. Players & Products
✤ FHA/HUD
✤ VA

19. Players & Products
✤ FHA/HUD
✤ VA
✤ Fannie Mae

20. Players & Products
✤ FHA/HUD
✤ VA
✤ Fannie Mae
✤ Freddie Mac

21. Players & Products
✤ FHA/HUD ✤ EEM
✤ VA
✤ Fannie Mae
✤ Freddie Mac

22. Players & Products
✤ FHA/HUD ✤ EEM
✤ VA ✤ EIM (RESNET term)
✤ Fannie Mae
✤ Freddie Mac

23. Players & Products
✤ FHA/HUD ✤ EEM
✤ VA ✤ EIM (RESNET term)
✤ Fannie Mae ✤ 203(k)
✤ Freddie Mac

24. Rater’s Perspective
Existing Home Process

25. Rater’s Perspective
Existing Home Process
Initial Rating

26. Rater’s Perspective
Existing Home Process
Initial Rating
Improvement Analysis

27. Rater’s Perspective
Existing Home Process
Initial Rating
Improvement Analysis
Reporting

28. Rater’s Perspective
Existing Home Process
Initial Rating
Improvement Analysis
Reporting
Followup Inspection

29. Cost Effectiveness
Time Value of Money
$100 of Future Value (e.g., energy savings)
is worth less than $100 in Present Value.

30. Present Value Calculation
Single payment

31. Present Value Calculation
Annual payments
HERS Standards, pp. 3-10 - 3-12

32. Present Value Calculation
PV = Present Value
FV = Future Value
i = interest rate
n = number of years
A = annual savings - maintenance costs

33. Improvement Example
Leaky, old house in Atlanta
Reduce infiltration:
7531 cfm50 --> 3766 cfm50
Reduce duct leakage:
1077 cfm25 --> 269 cfm25

34. Improvement Example
Cost for both
$3200
Annual savings
$551
Maintenance costs
$0

35. Improvement Example
Interest rate
5.5%
Lifetime
23 years

36. Improvement Example

37. Improvement Example
PV
=
$551 * (1- 1/(1+ 0.055)23)/ 0.055

38. Improvement Example
PV
=
$551 * (1- 1/(1+ 0.055)23)/ 0.055
=
$551 * 12.875

39. Improvement Example
PV
=
$551 * (1- 1/(1+ 0.055)23)/ 0.055
=
$551 * 12.875
=
$7094

40. Improvement Example
PV
=
$551 * (1- 1/(1+ 0.055)23)/ 0.055
=
$551 * 12.875
=
$7094
Total savings over 23 years: $12,673.

41. Improvement Example
Cost Effective?

42. Improvement Example
Cost Effective?
PV
=
$7094

43. Improvement Example
Cost Effective?
PV
=
$7094
Cost of improvements = $3200

44. Improvement Example
Cost Effective?
PV
=
$7094
Cost of improvements = $3200
Net PV = +$3894

45. Improvement Example
Cost Effective?
PV
=
$7094
Cost of improvements = $3200
Net PV = +$3894
Positive ==> Cost effective

46. Present Value Variables
5.5% 8%
23 years $7094 $5714
10 years $4153 $3697

47. Present Value Variables
5.5% 8%
23 years $7094 $5714 Higher PV from:
10 years $4153 $3697

48. Present Value Variables
5.5% 8%
23 years $7094 $5714 Higher PV from:
✤ Lower interest
10 years $4153 $3697

49. Present Value Variables
5.5% 8%
23 years $7094 $5714 Higher PV from:
✤ Lower interest
✤ Longer lifetimes
10 years $4153 $3697

50. REM/Rate Improvement Analysis

51. REM/Rate Improvement Analysis

52. REM/Rate Improvement Analysis

53. REM/Rate Improvement Analysis

54. Reporting

55. Reporting
✤ Basic info (Address, client name, property type...)

56. Reporting
✤ Basic info (Address, client name, property type...)
✤ Description of current energy features

57. Reporting
✤ Basic info (Address, client name, property type...)
✤ Description of current energy features
✤ Description of energy package

58. Reporting
✤ Basic info (Address, client name, property type...)
✤ Description of current energy features
✤ Description of energy package
✤ Estimated cost, useful life, & maintenance costs of energy
package

59. Reporting
✤ Basic info (Address, client name, property type...)
✤ Description of current energy features
✤ Description of energy package
✤ Estimated cost, useful life, & maintenance costs of energy
package
✤ Estimated current & projected energy costs

60. Reporting
✤ Basic info (Address, client name, property type...)
✤ Description of current energy features
✤ Description of energy package
✤ Estimated cost, useful life, & maintenance costs of energy
package
✤ Estimated current & projected energy costs
✤ Estimated annual savings & present value

61. Reporting

62. Reporting
✤ Names & signatures of field inspector (if any) and rater

63. Reporting
✤ Names & signatures of field inspector (if any) and rater
✤ The following certification:

64. Reporting
✤ Names & signatures of field inspector (if any) and rater
✤ The following certification:
“I certify to the best of my knowledge and belief, the
information contained in this report is true and accurate and
I understand that the information in this report may be used
in connection with an application for an Energy Efficient
Mortgage to be insured by the Federal Housing
Administration of the U.S. Department of Housing and Urban
Development.”

65. Followup Inspection

66. Followup Inspection
From HUD Mortgagee Letter 2005-21:

67. Followup Inspection
From HUD Mortgagee Letter 2005-21:
“The lender, the rater, or an FHA fee inspector may
inspect the installation of the improvements.”

68. Barriers to Widespread Use
of EEMs

69. Barriers to Widespread Use
of EEMs
✤ EEMs have not been user friendly.

70. Barriers to Widespread Use
of EEMs
✤ EEMs have not been user friendly.
✤ Lenders & underwriters aren’t aware of them.

71. Barriers to Widespread Use
of EEMs
✤ EEMs have not been user friendly.
✤ Lenders & underwriters aren’t aware of them.
✤ Lenders & underwriters don’t understand them.

72. Barriers to Widespread Use
of EEMs
✤ EEMs have not been user friendly.
✤ Lenders & underwriters aren’t aware of them.
✤ Lenders & underwriters don’t understand them.
✤ Realtors are afraid of them.

73. Barriers to Widespread Use
of EEMs
✤ EEMs have not been user friendly.
✤ Lenders & underwriters aren’t aware of them.
✤ Lenders & underwriters don’t understand them.
✤ Realtors are afraid of them.
✤ Homeowners/buyers aren’t aware of them.

74. PACE

75. PACE
✤ Property-Assessed Clean Energy

76. PACE
✤ Property-Assessed Clean Energy
✤ Finances energy improvements
through property assessment

77. PACE
✤ Property-Assessed Clean Energy
✤ Finances energy improvements
through property assessment
✤ Stays with the property, not the
borrower

78. ENERGY STAR Mortgages

79. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios

80. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios
✤ For homes certified in:

81. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios
✤ For homes certified in:
✤ ENERGY STAR new homes

82. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios
✤ For homes certified in:
✤ ENERGY STAR new homes
✤ Home Performance with ENERGY STAR

83. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios
✤ For homes certified in:
✤ ENERGY STAR new homes
✤ Home Performance with ENERGY STAR
✤ Weatherization Assistance Program

84. ENERGY STAR Mortgages
✤ Similar to EEMs but without stretch ratios
✤ For homes certified in:
✤ ENERGY STAR new homes
✤ Home Performance with ENERGY STAR
✤ Weatherization Assistance Program
✤ Can be combined with EEM

85. Architecture 2030

86. Architecture 2030
✤ Ed Mazria

87. Architecture 2030
✤ Ed Mazria
✤ Includes mortgage rate buydown tied to
energy improvements

88. Architecture 2030
✤ Ed Mazria
✤ Includes mortgage rate buydown tied to
energy improvements
✤ 2.5% interest rate for 75% reduction in energy
use, for example

89. Allison A. Bailes III, PhD Geoff Ferland
Energy Vanguard EcoLend
404-428-3393 828-479-LEND (5363)
abailes@energyvanguard.com geoff@ecolend.com
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