In a time of what often feels like considerable divisiveness, Michigan Saves stands out as an organization committed to helping and uniting the many players involved in improving energy efficiency.
“What we do for one part of the program,” says Michigan Saves executive director Mary Templeton, “has to make sense for, and benefit, the others. It’s just the way our organization works.”
For example, Michigan Saves’ loan loss reserve has helped participating lenders become more responsive to customer needs without taking unnecessary risks. But what does this look like in practice?
One thing Michigan Saves understands, perhaps better than anyone, is that access to capital is a significant barrier to customers making energy improvements to their homes, businesses, hospitals, municipalities and schools. To that end, the organization has worked closely with lenders to ensure that customers have access to high-quality, low-cost loans to make the improvements they want and need. At the same time, Michigan Saves reduces lender risk by holding money in reserve to help cover any defaults that may occur.
“It’s like having an amazing safety net,” says Templeton. “It allows the lenders that work with us to feel comfortable providing unsecured loans in larger amounts at lower interest rates and for longer terms, in part, because Michigan Saves has their back. We’re going to help them if things don’t go according to plan.”
But rarely is the loan process so disrupted. Five years of data show that the default rate on loans for improving energy efficiency is very low—only about 1.5 percent. Over time, this low rate, coupled with continued support from Michigan Saves, has enabled lenders to offer very favorable terms to their customers.
For example, since Michigan Saves was first established, most lenders have lowered their fixed annual percentage rates (APR) for residential loans from a maximum of 7% APR to just 4.99% APR, or even lower in some cases. Lenders have also been able to increase per-project loan amounts from $12,500 to $30,000. Increasing loan amounts not only helps customers, it also helps Michigan Saves’ authorized contractors.
“Our contractors keep telling us that they can help more customers do more traditional energy-efficiency work and more renewable energy projects if the loan cap is higher,” explains Templeton. “Of course, that’s something we want to explore because we know larger projects will help us make a bigger dent in reducing the state’s overall energy footprint.”
By working with Michigan Saves, lenders have also been able to offer ten-year terms for their unsecured loans—something virtually unheard of in the industry. Most lenders require unsecured home-improvement loans to be repaid much faster, usually between three and five years. Having longer terms is important because when homeowners have ten years, rather than three to five, to pay back their loans, they can use some or all of the savings in their monthly utility bills to help cover their investment.
Michigan Saves’ residential customers benefit because the loans are easy and affordable. No home appraisal or equity is required, applications are taken over the phone and Internet and a decision is made within minutes. Contractors benefit because they can serve more customers due to the ease and affordability of the loan options they can offer through participating lenders. And lenders are happy because they can use solid products to attract new customers without having to assume too much risk.
“When we say win-win,” says Templeton, “we really mean it.”
Private homeowners aren’t the only ones benefiting from Michigan Saves’ approach—a similar structure applies to commercial and multifamily projects. Lenders working with Michigan Saves are able to offer these customers extended terms (60–84 months depending on the work being done) at better rates and cover a more comprehensive list of energy-efficiency improvements beyond just capital equipment.
“The premise for all sectors is the same,” Templeton says. “We want to help lenders provide the best terms possible to customers without assuming too much risk. This benefits everyone—customers, contractors and lenders.” Most importantly, it benefits Michigan and its environment by reducing overall energy consumption.
This win-win approach has helped Michigan Saves grow significantly. In 2011—Michigan Saves’ first full year of operation—618 loans were issued through its Home Energy Loan Program with a total value of nearly $5 million. In 2015, the number of loans more than doubled (to 1,282) and the value increased to more than $13.3 million.
The Business Energy Financing program grew even more. In its first year, five loans were issued with a total value of about $346,000. Three years later, in 2015, the number of loans soared to 211 with a total value exceeding $6.2 million.
“I believe this growth is, in large part, due to the positive, collaborative approach that Michigan Saves takes to doing its work,” says Templeton.
Authorized contractors are educating potential customers every day about the favorable terms they could receive on loans provided by participating lenders. In turn, these lenders are helping to spread the word about Michigan Saves, the benefits of making energy-efficiency improvements and how to locate reputable contractors.
“For our part, we just try to make sure that everything we do is as easy and affordable as possible for everyone involved,” says Templeton.