Can being green give color to your credit score?

Energy efficiency continues to entrench into our culture throughout the U.S. There has been a recent study by The University of North Carolina that suggests there is a connection between energy efficiency and credit worthiness. The study concludes mortgages on homes with Energy Star certifications were on average 32% less likely to default, compared with loans on homes with no energy efficiency improvements. The study was conducted with a sample of 71,000 homes nationwide with an average value of $220,000, the mortgage originations was from 2002-2012. Energy Star homes are those with 15% or higher documentable savings on utility bills compared to those with minimal improvements. The statistical outcome stands to reason. Energy efficiency 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. Many expect that lenders will use this information to attempt to differentiate themselves by factoring energy efficiency into their underwriting, at the same time yielding safer investments. Some industry analysts expect there will be a strategy implemented to offer lower interest rates, a discount on upfront fees, or a reduced minimum down payment to reflect the reduced risk and further encourage efficiency. The impact of this study's conclusion may be far reaching. Lenders will be able to prescribe and require energy efficiency measures, and possibly finance them as part of the mortgage origination. Energy efficiency project costs have been steadily declining. As a result, the time to recoup investments on energy efficiency projects has been getting shorter. The ability to provide further confidence to investors and lenders through energy efficiency will likely be an impetus for a continued increase in energy efficiency project starts. Energy efficiency strategies can take the form of HVAC, lighting, or building envelope. There are currently state and utility incentives for many efficiency upgrades. As these groups take notice of the additional ancillary benefits of energy efficiency projects, they will be less likely to have pressure to continue these incentives. For those that want to take advantage of the incentives, decisions to act need to be timely. TLR Energy has been a provider of market based and technology solutions to clients since 1990. TLR's clients span international and are leaders in the dialogue on efficiency, sustainability, and energy procurement. Michael Thaler is president of TLR Energy Inc., New York, N.Y.