Program expected to expand home energy-improvement loans

| Wednesday, April 9, 2014, 11:21 p.m.

Funding for low-cost home energy improvement loans offered in Pennsylvania and other states could expand under a program that is expected to generate $100 million in financing — helping more homeowners save money and cut energy bills.

The state and Citigroup, the nation's third-largest bank, will provide capital to start a national effort to increase funding for loans like those in Pennsylvania's Keystone Help, which made 13,000 loans in the past six years.

They were used for solar installations, high-efficiency furnace or boiler, insulation, door and window replacements or other improvements. The state estimates home­owners save at least $2 million a year in energy costs as a result, said state Deputy Treasurer Keith Welks, who runs the program.

Kentucky has committed to participate in the national effort, and talks with at least two other states are progressing, Welks said on Wednesday.

The national effort will raise additional money for loans by packaging and selling existing home energy improvement loans as securities to investors.

The effort, called the Warehouse for Energy Efficiency Loans, will fill a void in funding. Backed by Citigroup's access to securities markets, a secondary market for existing loans will be created.

Welks said a challenge for Keystone Help has been a limited supply of money for loans. “We were scared to publicize it too much because demand might exceed supply,” he said.

With additional funding under the national program, 10,000 to 20,000 loans each year could be made in Pennsylvania, said Peter J. Krajsa, CEO of AFC First Financial Corp. of Allentown, which originates the loans for the state. “I think there's massive room for growth here.”

AFC First Financial manages similar programs for other states and utilities, such as West Penn Power's Sustainable Energy Fund, the state of Connecticut and Duke Energy in Ohio.

Such programs help consumers who can't otherwise afford upgrades, said Chris Christopher, director of consumer economics at IHS Global Insight. “Many people have a low score or insufficient credit. This does address a few of those issues. Credit is still tight, and anything that is energy savings is considered good. We had a cold winter, so there should be a market.”

“From a capital markets perspective, this is hugely significant,” said Citigroup's Bruce Schlein, who said the bank foresees a market strong enough to sell $100 million in securitized loans. With the national effort in place, more loans will be made and more states will join.

Jack Bernard, executive director of Renewable Funding of Oakland, Calif., said his organization will buy the loans, package them as securities, and work with Citigroup to sell them. The state Treasury and Citigroup each committed $12.5 million in credit to start that process.

“Institutional investors (foundations, universities, wealthy individuals) have trillions of dollars to invest in things like this, and it has been a success with other asset classes such as student loans and auto loans,” Bernard said.

The sponsors of the program made the announcement at Carnegie Mellon University's Robert L. Preger Intelligent Workplace, where environmentally sound building practices are studied. State Treasurer Rob McCord called it the “perfect location for announcing financial innovation ... that actually helps people.”

Pennsylvania's Keystone Home Energy Loan program, called Help, was created by the state Treasury in 2006.

Since then, Treasury has made $100 million in loans, using its authority to invest state money in prudent investments, Welks said. It benefitted taxpayers by earning a consistent average annual return of 5.65 percent, he said.

Last year, Treasury sold about 4,700 Help loans worth about $28 million to a group of three banks led by Fox Chase Bank of Harboro, Pa., to make more money available — a demonstration that the loans could be sold.

Consumers apply online at for three-, five- or 10-year, fixed rate loans of up to $15,000, which are available through a network of 1,600 state-approved contractors managed by AFC First Financial.

The average loan size is $7,800. They are structured as unsecured, simple-interest loans (similar to a car loan), at an interest rate of 7.99 percent for a single project, or 2.99 percent for “whole house” improvement projects that start with an energy audit.

The lower rate is “the incentive” to get homeowners to maximize energy upgrades, Krajsa said. About 70 percent of applicants are approved, he said.

Default rates have averaged about 1.7 percent, compared to about 3.0 percent on credit cards, he said.

Contractors selected by homeowners from the state's list are paid directly by Help upon successful completion of the project.

Steve Lee, head of CMU's School of Architecture, said such programs are “really critical to move energy efficient design of housing forward.”

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or

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