Mortgages Help Slash Utility Bill : Conservation: Little-known Energy Efficient Mortgage program is available to buyers who want to ‘super-weatherize’ their homes.

When Sue Johnson finally found an affordable home in Ontario in 1987, she was surprised to learn from the fine print on her appraisal that she could turn the drafty house into an energy-efficient one by simply tacking the cost of insulation work onto her mortgage.

But when she asked her real estate agent and lender to sign her up for the government-backed Energy Efficient Mortgage (EEM) program, she recalled recently, “They thought I was nuts. They had never heard of such a thing.”

Johnson’s agent reluctantly agreed to look into the little-known program, and the persistent Johnson “spent hours” persuading a wary lender to listen. Several days later a VA-backed $2,500 energy loan was added to her $89,950 mortgage.

The loan allowed Johnson to “super-weatherize” her 1960s-era home using state-of-the-art techniques to seal invisible drafts, install top-quality wall and ceiling insulation and replace her costly air-conditioner with a whole-house fan.

The project added $20 to her monthly mortgage payments, but she came out a clear winner, slashing her summer and winter energy bills by more than $40 a month.

One utility company was so suspicious about the rapid drop in energy use being registered at her home “that they replaced my meter to make it tamper-proof,” Johnson said, with a laugh.

Backed by the VA, FHA, Fannie Mae and Freddie Mac, the Energy Efficient Mortgage has been available since 1980 to home buyers and to owners refinancing their homes.

But because it is virtually unknown to real estate agents, lenders or buyers, fewer than 6,000 homeowners in California have signed up, according to experts.

Now a longtime effort to get out the word in California, spearheaded by two pioneers in the field of insulating and weatherizing, may finally bear fruit.

The two men, Ray Hall of Upland and Jim Curtis of San Jose, contend that California homeowners could save billions of dollars a year if they insulated the millions of homes built before 1985, when tough standards for energy-efficient construction were adopted in California.

“A lot of people have attic insulation or some weatherstripping and think they’re in great shape, but those houses are really incredible energy sieves,” Hall said. “It’s like having four flat tires and changing only one.”

Despite the huge energy savings to be had through EEMs--often 50% reductions in energy bills for a household--Curtis said the biggest obstacle “is in training home buyers and real estate agents that these programs even exist.”

Curtis, whose Bay Area Energy Consultants firm has retrofitted about 40% of the 6,000 California homes renovated with EEMs, said, “our basic business is just to educate realtors and lenders.”

Hall, whose H&L; Energy Savers has “super-weatherized” more than 300 homes in Southern California, is working with Century 21 and Sears to educate buyers about EEMs.

He places much of the blame for the failed program on real estate agents, who, he said, “don’t want to talk about flaws in a home, like drafts and thin walls, so they just ignore the program.”

Real estate industry spokesmen see things differently.

Pete Mills, manager of research and policy analysis for the California Assn. of Realtors, said EEMs, which vary from agency to agency and whose rules are sometimes changed, “are yet another layer of guidelines that make it very difficult for realtors to market.

“I don’t really want to put it all on the realtor, and nobody is really to blame. This is a tough thing for the loan officer as well.”

To energize the sagging EEM program, Hall and Curtis want the California Energy Commission to create a home certification system, loosely akin to the certificate now glued to refrigerators, that would test each home and assign a grade based on energy efficiency.

In addition, Curtis, who recently met with Bush Administration officials in Washington, wants the various loans made uniform so that agents and lenders will stop complaining that the loans are too complex to understand or promote.

Many believe that these two changes, if adopted, could spawn a popular movement toward EEMs. In such a scenario, hundreds of thousands of homeowners could reap permanent savings of 30% to 50% on their heating and cooling bills while helping California cut energy waste and power plant emissions--a massive source of air pollution.

Their arguments are not lost on California Energy Commission Chairman Charles Embrecht.

Twice in the 1980s, Embrecht purchased a family home. But in neither case was he told by his real estate agent or lender about the special loans, he recalled recently.

“The federal agencies simply have made no effort to aggressively market these loans, nor has the lender or real estate industry,” he said. Embrecht believes that heavy marketing, combined with a workable home-rating system, could result in widespread retrofitting of older homes and dramatic reductions in fossil fuel demands from California residences.

Embrecht said the South Coast Air Quality Management District “wants a 30% increase in energy efficiency by early in the century, over and above everything that’s now in place,” in state plans.

“We have taken a hard look at that, and the only way that can be accomplished is to go after the retrofit market--the older home.”

But what does all this mean to the California homeowner? Plenty, according to Embrecht.

“There is no question we are talking about everyday people saving billions of dollars,” he said. “We have already saved $11 billion in lower energy bills over the last 15 years because of new building standards, and the potential here is just as great.”

To prove its potential effects, the commission, the federal Department of Energy, Pacific Gas & Electric Co. and the Western Area Power Assn. are launching a pilot program this year in which 500 government-repossessed homes in the Fresno and San Francisco areas will be tested and rated for energy efficiency.

Potential buyers will be informed of the home’s “energy grade” and the savings possible from retrofitting, and will be shown how to apply for an EEM.

The agencies want to know two things:

Will buyers, once shown the potential savings, ask for an Energy Efficient Mortgage?

And will lenders, given proof of lower utility bills, offer that buyer more favorable underwriting in California’s steep housing market?

“The energy cost is the second-largest cost, on a monthly basis, in home ownership,” Embrecht said. “For it not to be counted in determining a loan makes no sense.”

In Washington state, he said, studies showed that the pool of households who would qualify for a home loan “grew by 7% to 10% if their reduced utility bills were considered as part of their debt ratio.”

Meantime, the energy commission is seeking proposals for ways to set up a statewide home-rating system. Hall and others, who are critical of the commission’s failure to approve such a plan in the past, point out that many states have home-rating systems, and that California is lagging.

Dick Palmer, an industry member of the commission’s advisory group on residential construction and a technical adviser to the California Building Industry Assn., said that while he is encouraged by Embrecht’s support, “We have seen the commission staff sidetrack this issue in the past, and they could do it again.”

Palmer criticized the commission’s push throughout the 1980s to “dump all the rules on new housing, when the really big waste of energy is in the existing housing.”

According to Curtis and Hall, the roughly 8 million homes built in California before 1977 generally have no wall insulation, are riddled with drafts and are often less than 50% energy-efficient--in other words, they use more than twice as much energy as is necessary.

Homes built from 1977 to 1985, under minimal energy standards, have minor insulation but are still energy guzzlers, most experts agree.

Moreover, although homes built in California since 1985 are supposed to be 80% to 85% energy-efficient, many do not come close. According to state officials, a recent study revealed that many builders in California are ignoring the tougher 1985 construction standards.

But Mills, of the California Assn. of Realtors, cautioned that even if owners of such energy-guzzling homes are “given every chance” to upgrade their houses, many will refuse to do so.

“Even if (the program) is streamlined, some will and some won’t because they’ll figure it saves them $20 or $30 a month, and that’s not that much if you are staying in a home only three years,” Mills said.

But Embrecht said that if home buyers cannot be persuaded to embrace EEMs voluntarily, the state one day may consider requirements that force them toward energy-efficiency.

“One of the ideas we are looking at is that a home’s energy rating must be disclosed as part of resale, which would put a seller of an energy-wasting home at a disadvantage in the marketplace,” Embrecht said.

“Obviously this whole effort is predicated on using market forces and voluntary action by the general public, but . . . the global and regional situation may ultimately require mandatory rules. “Someday, like emission controls for motorists, retrofitting may be something a homeowner will simply be forced to accept.”

HOW TO CREATE AN ENERGY-EFFICIENCY HOME

* Stop air infiltration. Cold air in winter and hot air in summer seep into homes and account for 40% to 50% of energy waste as homeowners attempt to maintain comfortable temperatures. Leaks are detected with a “blower door” device that sucks air through homes and identifies all invisible drafts. Worst air leakage occurs from ducts, electrical outlet holes, attic hatches, doors and windows, fireplaces and leaking cold air returns.

* Insulate walls. Loss of heated and cooled air through walls accounts for 20% of energy waste. State code is R-11, but blown-in cellulose will achieve a higher R-13 rating. Also helps soundproof home.

* Insulate attic. Loss of heated and cooled air accounts for 20% of energy waste. Insulation in Southern California should meet state standard of R-30. In colder climates, for instance high mountains, homeowners could benefit from R-38.

* Replace air conditioner with whole-house fan. Installed in a ceiling, these powerful fans re used at night to suck cool air through open windows and expel warmer air through attic. Works best when night temperatures stay below about 80 degrees. Air cooled at night will keep most well-insulated homes comfortable throughout a hot day if windows are kept closed. Whole-house fans cost 3 1/2 cents an hour to operate. Air conditioners cost 60 to 80 cents an hour.

* Tune-up and clean heater and air conditioner. Do this annually. Savings vary.

Replace any water heater older than 10 years, and wrap with insulating blanket. Accounts for about 2% to 3% of energy waste.

* Floor insulation is probably not needed in Southern California, representing about 5% of energy waste but costing a good deal to install.

* The goal in insulating a house is to reduce the speed with which the air inside is exchanged with the hot summer air or cold winter air outside. Typical older California homes lose an entire houseful of air every single hour, forcing homeowners to continually reheat or recool the new air. In “super-weatherizing,” the goal is to lose only one-half houseful of air per hour.

SOURCE: H&L; Energy Savers, Upland.

WHO TO ASK ABOUT ENERGY EFFICIENT MORTGAGES

* Federal Office of Domestic Economic Policy Development, Andrew Mitrusi, (202) 456-7082. Information on all programs.

* HUD/FHA, Anna Kondratas, (202) 755-6690.

* Veteran’s Administration, Walter Burke, (202) 233-2691.

* Fannie Mae, Bonnie Odell, (202) 752-6527.

* Freddie Mac, Frank Tassche, (202) 759-8864.

* Dept. of Energy, Jamie Pound, (202) 586-1085.

* Bay Area Energy Consultants, Jim Curtis, (415) 858-0888.

* H&L; Energy Savers, Ray Hall, (714) 985-0733.