For many people, the only way they can afford housing is to add a long commute—the paycheck can't qualify for more expensive housing closer to work. However, owning and operating a car to use for the commute costs the average person over $6700 per year, according to the American Automobile Association.
Living in a transit-accessible neighborhood, where most trips can be made on foot or by transit, can cost considerably less. By eliminating the car, a home-buyer's available income can increase. However, until recently, there was no mechanism to acknowledge that certain neighborhoods could allow homeowners to make this shift, thereby affording more expensive housing.
Three organizations (the Center for Neighborhood Technology, the Natural Resources Defense Council, and the Surface Transportation Policy Project) created a partnership to research and create a new type of mortgage which credits home purchasers with greater buying power when they buy in transit-accessible neighborhoods. They envision its use by low- and moderate-income households and in low- to moderate-income neighborhoods. It could be used by primary lenders to meet lending goals in urban neighborhoods under the Community Reinvestment Act and the Home Mortgage Disclosure Act, as well as by the Federal National Mortgage Association (Fannie Mae).
The location-efficient mortgage (LEM) allows a person to qualify for a more expensive mortgage when monthly expenses drop because of transit accessibility. The program uses software to pinpoint a prospective buyer's proposed purchase and the distance to transit and other common destinations such as shopping and cultural sites. Based on the information, the program calculates a Location Efficiency Value which is entered into the mortgage formula calculation.
The LEM could improve transit efficiency by adding more riders, revitalize downtown shopping districts with local patronage, and encourage infill projects by developers who have more purchasers qualified by using the leveraged mortgages. In addition, energy conservation and air quality would benefit from less automobile usage.
For more information:
Donna Liu, Natural Resources Defense Council, 415-777-0220.