Comment Detail

Comment

For Pima County and the jurisdictions within Pima County, affordable housing and energy efficiency are significant policy issues. The recently adopted Pima County Comprehensive Plan, Pima Prospers contains the following policy goals:
3.2 Focused Development Investment Areas Element, Goal 3: Create incentives to the extent possible for energy efficiency and climate adaptation design features in redevelopment projects.
3.4 Environmental Element, Goal 2, Policy 3(c) Continuing to increase energy efficiency including energy efficiency standards in both County‐owned and privately owned buildings;
6.7 Construction as a Stimulus of our Economy,Goal1, Policy 4 (e): Work with industry leaders to encourage the retrofitting and rehabilitation of our housing stock to increase energy efficiency.
Many energy efficiency advocates suggest that disclosure such as publishing the HERS score of a home, analogous to the mpg sticker on a car, is the solution to provide the benefits of energy efficiency in the residential sector. Studies indicate that disclosure does necessarily change behavior.
“In the case of passenger cars, U.S. average fuel economy did not fall as economic theory would predict, suggesting that CAFE standards maintained the higher fuel economy of the passenger car fleet during the long period from the end of the 1979 energy crisis to the rise of gasoline prices in the early 2000s.”
National Highway Traffic Safety Administration (March 2007). "Summary of Fuel Economy Performance, March 2007" (PDF). Retrieved2007-09-23. As cited in en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy
See also: http://www.law.uchicago.edu/files/file/loewenstein_disclosure.pdf
In the case of residential energy efficiency regulation that incentivizes the access to capital is a win-win situation. The market for energy efficiency is enhances without additional regulation on individuals or industry with regards to energy efficiency minimum standards or required measures.
Therefor Pima County submits the following recommendations for consideration:
Question 10. What existing Enterprise criteria (contained in Freddie Mac’s Manufactured Homes, Publication Number 387B and Fannie Mae’s Selling Guide, B5–2 53) for support of manufactured home loans titled as real property could be modified to expand support for very low-, low-, and moderate-income families, consistent with Enterprise safety and soundness?
• There are many high-performance modular products available on the market. Enterprises should underwrite high performance products ensuring target markets are taking on debt for a longer-lasting product that will better maintain its value while also ensuring the consumers’ operational costs will be lower than with alternative products that are much less energy and water efficient.
• Reducing occupants’ monthly operational cash outlays (net of any incremental debt service costs) relative to business-as-usual modular housing should further improve occupants’ creditworthiness supporting the Enterprises’ mandate to provide capital to markets in a safe and sound manner.
• The Enterprises could offer mortgage products specifically for these higher performance manufactured homes that have improved loan-to-value ratios or rates.
• The Enterprises should conduct capacity building in order to support these requirements by educating appraisers and lenders on these homes. Capacity building may also be required to ensure there are credible entities that can project the energy savings and justify the potentially higher cost of high-performance products.

Question 51. Should Enterprise support for multifamily properties that include energy improvements resulting in a reduction in the tenant’s energy and water consumption and utility costs be a Regulatory Activity?
• Enterprise support for multifamily properties that includes energy improvements should be a Regulatory Activity. The Enterprises have a responsibility to preserve affordable housing, and energy improvements can reduce utility costs, thus enabling affordability for very low-, low-, and middle-income families. Further, these improvements can create significant savings for both tenants and building owners.
• Very low-, low-, and middle-income families spend a disproportionate share of their income on energy costs. For instance, very low-income households spend 18 percent of their annual income on energy costs (Joint Center for Housing Studies, 2015). Thus, FHFA is correct to point out that lowering utility expenses can help maintain the affordability of multifamily rental housing.
• Energy retrofits can generate net savings and enable higher-quality housing for low-income families. By reducing energy costs through retrofits, owners of multifamily housing units may have capital to invest in maintenance, repairs, and other upgrades. A recent report estimates that “[m]eeting achievable energy potential by 2020 can create $9 billion in annual energy savings for tenants and landlords (NRDC, 2014).
Sources
• Joint Center for Housing Studies of Harvard University, 2015. The State of the Nation’s Housing 2015. http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-sonhr-2015-full.pdf
• NRDC. “Fact Sheet: Affordable Multifamily Housing Efficiency Project.” February 2014. http://www.neep.org/sites/default/files/resources/multifamily-housing-energy-efficiencyFS.pdf

Question 52. How can the Enterprises provide more outreach to lenders regarding the Enterprises’ energy-improvement products?
• The Enterprises should reach out to lenders in a way that provides a strong incentive for lenders to participate in the products, and creates consumer demand for the products.
• FHFA guidelines could support Community Reinvestment Act (CRA) requirements by reporting lenders’ issuance levels of the Enterprises’ energy-improvement products.
• The Enterprises at a minimum should require lenders to make clients aware of these product offerings, potentially through various mediums including verbal communication, flyers and pamphlets, their website, or other means.

Question 53. Should the Enterprises require the lender to verify before the closing of an energyimprovement loan that there are reliable and verifiable projections or expectations that the proposed energy improvements will likely reduce the tenant’s energy and water consumption and utility costs and, if so, what standards of reliability, verifiability and likelihood of reduced consumption and costs should be required?
• An energy assessment should be conducted before closing any energy-improvement loan. The Enterprises should require that assessments meet a baseline certification standard while being flexible on which entities conduct such assessment (e.g., a third party versus a utility or state/local agency) to satisfy this requirement. This allows borrowers to avoid needing several assessments to access multiple incentives or products at the federal or state/local level.
• When factoring energy costs into financing and mortgage decisions, there should be a system to ensure the integrity of disclosure. This system for integrity should include a list of approved energy-efficiency measures that can be financed. In addition, it should include requirements for contractors to submit a calculation of costs and savings, which contractors certify have been calculated according to a reliable, industry-accepted methodology. These should be countersigned by owner.
• Additionally, where applicable, old equipment should be removed from the premises to avoid reuse in different applications that may result in higher energy costs overall.

Question 54. Should the Enterprises be required to verify, after the closing of an energyimprovement loan, that the energy improvements financed actually reduced the tenant’s energy and water consumption and utility costs and, if so, how can they verify this?
Question 62. Should the Enterprises be required to verify, after the closing of a single-family energy improvement loan, that the energy improvements financed actually reduced energy and water consumption and utility costs and, if so, how can they verify this?
Responses are relevant to both Question 54 (multifamily) and 62 (single family).
• The Enterprises should only require confirmation that measures have been installed as designed in a cosigned statement from the installer and homeowner. This should be supported by a system to ensure integrity of disclosure, as discussed in the response to question 53.
• Requiring the Enterprises to verify, after the closing of an energy-improvement loan, that financed improvements reduced energy costs would drive up the costs of program administration significantly.

Question 55. What, if any, ongoing monitoring should be required to measure the effectiveness of financed energy improvements in reducing tenants’ energy and water consumption and utility costs?
• It is expected that, in the near future, energy market reform will incentivize the aggregation and real-time tracking of efficiency savings in both the commercial and residential markets at scale. The Enterprises should require that any efficiency-loan products provide resources and require installation of occupant-management systems and performance-tracking technologies. These technologies are operational even in jurisdictions without advanced metering technologies. As energy markets continue to evolve and align around payment for performance this will position building owners and homeowners to opt-in to benefiting from such services and programs.

Question 56. For the proposed requirement that the reduced utility costs will offset the upfront costs of the improvements within a reasonable time period, should a reasonable time period be defined and, if so, how?
Question 58. What is a reasonable time period for the reduced utility costs from energy efficiency improvements to offset the upfront costs of the improvements?
Question 63. For the proposed requirement that the reduced utility costs will offset the upfront costs of the improvements within a reasonable time period, should a reasonable time period be defined and, if so, how?
Responses are relevant to Questions 56, 58, and 63.
• The time period needs to be long enough to ensure meaningful measures and positive cash flow for the homeowner but not longer than the aggregate life of the assets. If approved measures are to be defined (see response to question 53) a maximum term can be prescribed for individual measures with the aggregate term being the weighted average.

Question 57. How can the Enterprises work with potential lenders to facilitate financing for energy efficiency improvement loans on single-family properties?
Question 60. How can the Enterprises provide more outreach to lenders regarding the Enterprises’ energy improvement loan products?
Responses are relevant to both Question 57 and 60.
• The most significant way the Enterprises can signal the importance of energy costs tolenders’ underwriting considerations is to require all operational costs to be included in thedue diligence process. In the very low-, low- and moderate-income market segments, manyof these costs can be as much as the associated mortgage for a property, and are anoverlooked cash-flow risk. Therefore, the Enterprises should work with lenders to implement the most efficient way to incorporate these considerations into underwriting practices. From there, lenders can be educated on the best lending products appropriate for a homeowner, should improvement measures need to be installed.
o To bring lenders on board with such procedures, the Enterprises can educate them on the lower default rates associated with energy-efficient homes.
o The Enterprises can also provide materials for lenders to use sharing case studies of successful energy-loan improvements and the multiple benefits including health, comfort, savings, privacy, and home value.
Source • Roberto Quercia, Robert Sahadi, and Sarah Stellberg, Home Energy Efficiency and Mortgage Risks, Institute for Market Transformation and UNC Center for Community Capital. March 2013. http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf

Question 59. Should Enterprise support for single-family properties that include energy improvements resulting in a reduction in the homeowner’s or tenant’s energy and water consumption and utility costs be a Regulatory Activity?
• The Enterprise support for energy improvements in single-family properties should be a Regulatory Activity. The lower risks of loan default and prepayment associated with energyefficient homes supports a safe and sound housing market.
• A preeminent study in the energy efficiency field finds that default risks in energy-efficient homes are 32 percent lower on average, controlling for other loan determinants (e.g., age of home, sale price, etc.). Further, borrowers in ENERGY STAR-rated homes are 25 percent less likely to prepay the mortgage. Mortgage underwriting guidelines should reflect the reduced risk associated with energy-efficient homes.
Source
• Roberto Quercia, Robert Sahadi, and Sarah Stellberg, Home Energy Efficiency and Mortgage Risks, Institute for Market Transformation and UNC Center for Community Capital. March 2013. http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf
Question 69. What types of Enterprise activities could help build institutional capacity and expertise among market participants serving rural areas?
• The most significant way the Enterprises can signal the importance of energy costs to lenders’ underwriting considerations is to require all operational costs to be included in the due diligence process. In the very low-, low- and moderate-income market segments many of these costs can be as much as the associated mortgage for a property, and are an overlooked cash-flow risk. Therefore, the Enterprises should work with lenders to implement the most efficient way to incorporate these considerations into underwriting practices. From there, lenders can be educated on the best lending products appropriate for a homeowner, should improvement measures need to be installed.
o One way to bring lenders on board with such procedures is to educate them on the lower default rates associated with energy-efficient homes.
o The Enterprises can provide materials for lenders to share case studies of successful energy loan improvements and the multiple benefits, including health, comfort, savings, privacy, and home value.
• Rural markets face significant challenges with substandard housing stock. The Enterprises could also incentivize lenders to work with local utility programs to ensure consumers are aware of the energy improvement programs and financial products available to them. This would serve to mitigate collateral risk due to extreme deferred maintenance existent in rural markets.
Question 3. Are the proposed Regulatory Activities, as identified in the proposed rule for each of the underserved markets and described further below, appropriate for accomplishing the Duty to Serve objectives?
• One of the areas where the agency and the Enterprises will need to consider the ramifications of market trends for the target markets as well as the broader mortgage industry is solar power. The price of solar is now cheaper than many efficiency measures in Pima County. Unlocking solar energy for low-income communities could generate lasting wealth and meet a large percentage of their power needs, especially if combined with energy-efficiency measures. One study found that the installation and operation of a full, low-income, solar build-out would contribute an additional $18.7 billion of local economic output each year. The Enterprises should ensure solar is considered in any energy-performance products they offer or promote.
Source: • James A. Mueller and Amit Ronen, Bridging the Solar Income Gap. GW Solar Institute, The George Washington University. January 2015. http://solar.gwu.edu/research/bridging-solarincome-gap