Innovations

INNOVATIONS November 1997

Energy Efficient Improvement Loans
Offered Through New Program

Looking for new ways to generate energy efficiency improvements among residential customers?

Consider this. Volt VlEWtech, a wholly-owned subsidiary of Volt Information Sciences, Inc., (a Fortune 1000 company) has opened the National Energy Loan Center to help Fannie Mae (the nation's largest supplier of home mortgage funds) originate and service energy efficiency loans.

Fannie Mae and VlEWtech are partnering with utilities to offer unsecured consumer loans to homeowners who want to make energy efficiency improvements. Homeowners may borrow up to $15,000 for up to 10 years -- at fixed rates -- to install high-efficiency HVAC equipment and other energy-related improvements.

Volt Viewtech, which operates over 30 different residential finance programs, implemented Fannie Mae's first energy loan program for Pacific Gas & Electric Company. Since July 1995, VlEWtech has approved more than 12,000 loans totaling $80 million for the utility's customers.

Through the National Energy Loan Center, utilities and their customers can benefit from below-market, tiered interest rates, quick loan approvals and streamlined underwriting guidelines.

VlEWtech receives loan applications directly from approved contractors, and underwrites and originates loans to program guidelines. After issuing the loan check, VlEWtech transfers loan obligations to Fannie Mae, but continues to collect payments.

"One of Fannie Mae's chief goals is to reduce the cost of home ownership," explains David Carey, Fannie Mae's director of energy finance. "We recognize that after the mortgage itself, the greatest cost in owning a home is energy. These loans are intended to reduce that cost."

Fannie Mae believes gas and electric utilities are key in promoting energy-efficient loans through bill inserts, newsletters and other means. In addition, utilities can decide what types of energy efficiency improvements are most appropriate and can monitor the quality of installations.

According to Ed Thomas, director-sales and marketing for Volt VlEWtech, participating utilities sign a loan service agreement with the National Energy Loan Center, plus an agreement with Fannie Mae which addresses loss-sharing on any loans that may default. Basically, it creates a "private-label consumer loan program for the utility," he says. "We handle the back-office work and service the loan so the utility can get all the benefits of a full-service loan operation without any of the overhead costs."

It's a risk-free endeavor for utilities, Thomas says. Fannie Mae pays fixed monthly operations costs. Volt Viewtech recoups the cost of originating and servicing a loan through the interest rate. The utility benefits by being able to offer another customer convenience.

The program has already generated a lot of interest. "As utilities make the transition into a deregulated environment, they're looking for new options to replace the rebates and other subsidies traditionally offered to customers for energy-efficiency improvements," Thomas says.

Participating utilities determine the conditions of the program, including which contractors may be allowed in the program and what equipment or materials can be financed.

Yankee Gas Services, the largest natural gas distributor in Connecticut, was the first to sign on. Working through its unregulated sister company, Yankee Energy Financial Services (YEFS), Yankee Gas offers its customers 10-year 8.5 percent fixed-rate loans for qualified equipment, such as gas-fired furnaces that are at least 90 percent efficient, and gas-fired boilers at 82 percent efficiency or above.

According to Matt Ide, manager, YEFS, the agreement with the National Energy Loan Center has been a great improvement over its former alliance with a local bank. The service has been streamlined, the delivery system is much faster, and it removes several qualification restrictions that were in effect under the old system. For instance, he says, now YEFS can lend money to property owners who rent out their property.

YEFS has also changed the way it markets the service, Ide says. "We've switched from a traditional utility mentality to a market-driven mentality that has helped us look at things from the customers' point of view." For example, customers are used to receiving instant financing approval with other transactions. Plus, many want to finance other home energy needs at the same time. YEFS only requires that a gas furnace or water heater constitute at least half of the loan value.

"Our promotion of the program has become a two-pronged marketing approach where both contractors and customers are encouraging each other to get involved in the program," Ide says.

The 50-plus HVAC contractors enrolled in the program love it because they can offer their customers attractive on-the-spot financing. "The HVAC contractors in our area are mostly fuel-neutral," Ide says. "They just want to sell a new furnace or boiler. The availability of these loans gives them an incentive to recommend natural gas."

Likewise, some customers have actually helped push their non-enrolled contractors into the program because they want to take advantage of the financing they read about in their Yankee Gas bill inserts.

While the loans will generate a profit for YEFS, they are mainly seen as a tool to win a competitive advantage over electric utilities and fuel oil dealers.

For more information, call 800/355-8439.