On November 9, 2010, the U.S. Department of Housing and Urban Development (HUD) issued a press release unveiling its proposal to oversee a new loan insurance pilot program intended to support homeowner financing of energy efficient improvements. Under the Consolidated Appropriations Act, 2010 (P.L. 111-117, 123 Stat. 3034), approved on December 16, 2009, HUD is required to administer an Energy Efficient Mortgage Innovation pilot program directed at the single family housing market. In response to this mandate, HUD has proposed to supplement and work through the Federal Housing Administration’s Property Improvement Loan Insurance Program (“Title I Program”) governed by Title I of the National Housing Act (12 U.S.C. § 1703). This new initiative – the FHA Home Energy Retrofit Loan Pilot Program – will be known for short as the FHA PowerSaver.
The FHA PowerSaver pilot program, as proposed, is designed for persons who are interested in installing energy conservation measures that improve home energy performance or facilitate such results. In this regard, HUD will insure “single family property improvement loans,” as such term is defined in the Title I Program regulations (24 C.F.R. § 201.2), through FHA-approved lenders that are originated during a two-year period to eligible borrowers.
Eligible borrowers must either hold fee simple title to the property they are seeking to improve or hold a contractual interest therein evidenced by a properly recorded land installment contract. In either case, the property (i) must be a single family, detached home, (ii) must be the borrower’s principal residence and (iii) must be within one of the geographic areas identified by HUD as being optimal for this pilot program.
Loan terms will likely be limited to 15 years, so that the repayment term will closely match the useful life of most energy conservation measures. However, according to the HUD notice published in the Federal Register on November 10, 2010, a 20-year loan term may be approved for improvements that have a longer useful life, such as renewable energy facilities or geothermal systems.
In addition to guaranteeing home improvement loans, HUD will have at its disposal $25 million, which Congress allocated for the Energy Efficient Mortgage Innovation pilot program through the Consolidated Appropriations Act, 2010. According to the November 10th Federal Register notice, “HUD will utilize those funds primarily to provide incentive payments with grant funds to participating lenders to support approved activities that deliver bona fide benefits to borrowers, with remaining funds available to support the evaluation of the [PowerSaver] Pilot Program.”
HUD will be accepting comments on the proposed PowerSaver pilot program until December 27, 2010. Instructions on how to submit comments are included in the November 10th Federal Register notice. HUD is expected to announce formally the establishment of and final details for the FHA PowerSaver through the issuance of another notice in the Federal Register following its review of public comments.