Banks see silver lining in rising energy prices

Some Maine lenders are introducing incentive programs with special terms for consumers who want to buy hybrid cars or pellet stoves. Others are loaning money simply so people can pay for oil this winter.

By TUX TURKEL, Staff Writer

July 6, 2008

Sometimes, it takes some green to go green.

As Mainers scramble this summer to buy gas-stingy cars and wood-burning stoves, area banks and credit unions are discovering a new opportunity to lend money.

Lenders recently have picked up on the fact that many people can't translate good intentions into energy efficiency without financing. So they've begun introducing incentive programs with special terms, and are teaming up with retailers, such as stove shops.

Even so, these programs may be hard-pressed to meet demand. Some stove dealers already are selling out of equipment. State housing officials say they don't have enough banks to process loans. And in a sign of the times, some lenders are loaning money just so people can pay for heating oil this winter.

Maine banking groups currently are surveying their members to get a sense of what programs are going to be available to help residents cope with crushing energy costs.

"There's a lot of time and effort being put on this right now," said Mark Walker, vice president and general counsel at the Maine Bankers Association.

It's only been in the past 12 months or so, Walker said, that customers have begun clamoring for energy-related financing. Many banks are just now figuring out how to respond.

One of the pioneers in this new wave of green lending is Franklin Savings Bank in Farmington.

For the past year, borrowers have been able to get a half-point discount on loan interest rates if they buy cars that get 35 miles per gallon or higher. That currently translates into a rate of 5 percent. The bank, which does business in Franklin, Oxford and Somerset counties, so far has loaned more than $1.2 million for gas-sipping cars and other energy-efficient products.

This is how the bank figures the math: If it lends money for a gas-guzzling truck or SUV and needs to repossess the vehicle, chances are it will take a big loss in the resale market. The bank would rather loan for hybrids and other high-mileage wheels, which are more likely to retain their value.

"It's less risk for us," said Andrew Sturtevant, the bank's administrative vice president for loan services.

Sturtevant, perhaps more than most bankers, is tuned in to energy-efficient transportation. He commutes 40 miles round-trip from his home in Fayette on a Dutch-made pedal vehicle that's backed up by tiny electric and gasoline motors.

At Franklin Savings, borrowers are offered a discounted rate on home-equity loans for solar and wind installations. And through a recent partnership with the Northern Lights stove shop in Farmington, customers can get discounted loans up to $5,000 for pellet stoves.

Historically, Sturtevant said, banks weren't anxious to lend money for heating equipment. The assumption was that every house had heat, and upgrades didn't change the market value much. But with so many home- owners struggling to pay their mortgages today, Sturtevant said, banks realize that customers who also face thousands of dollars in energy bills are at risk of defaulting on their loans.

"We feel it makes economic sense to hedge them against high heating costs," he said.

SELLING OUT OF PELLET STOVES

The program has been good for Northern Lights. Marty Farnum, a co-owner of the stove shop, estimates that roughly a third of his customers need a loan.

The problem now, Farnum said, is that the store has sold 100 pellet stoves so far this year and probably won't get any more from the manufacturer. He's got nearly as many people on a waiting list for 2009.

Availability is also an issue at Aubuchon Hardware in Portland.

The chain last month formed a partnership with Northeast Bank to help residents buy wood and pellet stoves. Bank fliers in the stores tell people about the low-interest, unsecured loans. Robert O'Brien, assistant manager at the Portland store, recently sold a $1,499 stove to a resident who saw the bank promotion and got a loan.

O'Brien would like to sell more pellet stoves through Northeast Bank, but the eight units he received late last month were sold within days, including the store's display model.

For Northeast Bank, though, awareness of its Green Energy Solutions program can help forge valuable, long-term connections. The bank formed a financing partnership last month with Maine Energy Systems, the Bethel-based company importing a European-made pellet boiler. Northeast is offering 100 percent financing for residents to switch to pellet-fired central heat, at a cost of roughly $12,000.

Offering a loan that size gives the bank an opportunity to sit down with customers and examine their finances, according to Jim Delamater, Northeast's president and chief executive officer. That relationship could lead to helping a customer restructure debt, or suggesting other financial products or services.

"It gives us access to people who are looking for advice," he said.

NOT ENOUGH BANKS SIGN UP

Another availability issue is cropping up at the Maine State Housing Authority, which offers low-interest energy loans to residents who meet income guidelines. Improvements include new heating systems, insulation and air sealing.

The agency's Home Energy Loan Program pays private lenders to process its loans, but only six have signed up. No banks north of Bangor have agreed to participate, according to Kim Weed, the program's director, leaving a gap in applications from Aroostook County.

"I have people calling me every day, but there's only a limited amount of banks I can refer them to," Weed said.

Some banks, on their own, are offering loans for a wide range of energy improvements.

A month-old program at Bath Savings Institution allows customers to borrow from $1,000 to $25,000 at preferential rates for improvements including insulation, windows, heating systems and solar and wind installations. Purchases must meet certain energy efficiency and contractor guidelines to qualify. Bath Savings also has a Green Auto Loan aimed at hybrid vehicles, with a quarter-point discount.

A program with very attractive terms -- a 2.99 percent annual percentage rate -- is being introduced this month by Casco Federal Credit Union, which has offices in Westbrook and Gorham. Customers can borrow up to $3,000 for a year and use it to buy wood and pellet stoves, and high-efficiency gas and propane units.

"We're basically not in it to make money," said Jim Stone, the credit union's president and chief executive officer. "This heating season is going to be tough for a lot of people, and we want to do our part."

Borrowers also can use that money to buy heating oil. In upcoming advertising, Casco is advertising the program as a "home fuel loan" to help customers lock in lower prices now. There's a demand for this financing, Stone said, although he's not happy about that.

"It's a sad state of affairs to borrow money to fill your tank," he said.

Staff writer Tux Turkel can be contacted at 791-6462 or

tturkel@pressherald.com