Location Efficient Mortgages

According to the National Resources Defense Council, "A Location Efficient MortgageSM increases the amount of money homebuyers in urban areas are able to borrow by taking into account the money they save by living in neighborhoods where they can shop at nearby stores and use public transit, rather than driving to work and to the mall. The Location Efficient Mortgage^SM program was designed to encourage the development of efficient, environmentally progressive communities and to reduce urban sprawl and dependence on cars." NRDC has an online a Guide to Location Efficient Mortgages, including Frequently Asked Questions. The Location Efficient Mortgage^SM project is a joint effort of the Natural Resources Defense Council, the Surface Transportation Policy Project and the Center for Neighborhood Technology.

According to the Location Efficient Mortgage CM Partnership:

"The big difference between the LEMCM and a traditional mortgage is that it takes into consideration the transportation-related savings that are achieved by an urban household that uses public transportation and relies on local services such as shops, stores, schools, as well as entertainment and recreation amenities. For many urban households, the LEMCM can mean thousands of dollars of additional home buying power."

In their May 2001 discussion paper, Location Efficient Mortgages: Is the Rationale Sound?, co-authors Allen Blackman and Alan Krupnick with Resources for the Future used records of over 8,000 FHA-insured mortgages matched with data on various measures of location efficiency to test the proposition that "homeowners in such 'location efficient' areas can safely be allowed to breach underwriting guidelines designed to prevent mortgage default because they have lower than average automobile-related transportation expenses and more income available for mortgage payments." Their results suggest that it does not hold and that LEMs—like other low-downpayment mortgage programs—will raise mortgage default rates. They conclude that the default costs must be weighed against any potential anti-sprawl benefits LEMs may have.

Additional Resources:

Goldstein, David B. Making Housing More Affordable: Correcting Misplaced Incentives in the Lending System. Natural Resources Defense Council. San Francisco, California May 27, 1996
Homing in on solutions. Location Efficient Mortgage. Amicus Journal v. 18 (Fall '96) p. 7

The writer of this article provides an introduction to LEM; details the support from lenders to date for the idea of the LEM; and, discusses the complex computer models that demonstrate the economic viability of the LEM and that are central to securing support for the idea.

Prime location. Location Efficient Mortgage. Amicus Journal v. 19 (Winter '98) p. 5

The writer discusses the Location Efficient Mortgage (LEM), which takes account of the cost of transportation when calculating one's eligibility for home ownership. The LEM acknowledges that cutting one's reliance on the automobile increases one's net income. The LEM benefits the economy by supplying the lending mechanism to renew urban centers and the environment by reducing urban sprawl and all its environmental impacts: smog, water waste, and habitat loss, among others. Data indicate that the LEM could open up significant new markets for home ownership.

Thangavelu, Poonkulali. Location Efficient Loan Serves Seattle Bus and Train Riders. National Mortgage News 24, no. 13 (December 13, 1999): 25

This writer discusses the introduction of LEM in Seattle. Provides an example of impacts: "A home located in the Ballard neighborhood of Seattle, for instance, has an LEV of $266 per month. According to the LEM calculator, this property could add $3,192 to the borrower's annual qualifying income. Based on a traditional financing package, a family with an annual income of $60,000 would be approved for a mortgage for a home priced at $142,877, compared with the $160,709 home that the applicant would qualify for using a Location Efficient Mortgage."

National Center for Transit Research's National TDM and Telework Clearinghouse is located at the Center for Urban Transportation Research at the University of South Florida in Tampa, Florida