Residential property energy efficiency and mortgage lending: evidence from U.S. market

Despite the emerging literature on the effects of residential property energy efficiency on mortgage performance, little is known about its impacts on mortgage lending. To bridge this gap, this research investigates whether lenders consider energy aspect when originating mortgage in the U.S. residential market. Our results indicate that financial institutions do not take residential property energy efficiency into account in their decision-making process, which is robust after taking additional robustness test as well as placebo test. We further examine whether regulatory interventions could strengthen the importance of residential property energy efficiency in mortgage lending and find that residential mortgages originated after energy-related policies taken effect are more likely to be approved and less likely for the purpose of purchasing new homes. There is no evidence to show that regulatory interventions facilitate lenders to price energy aspect in interest rate. Overall, our results reflect the current state of energy concerns in the U.S. residential mortgage market. Based on our findings, financial institutions can make adjustments to existing regulations or incentives to help loan officers make better decisions.