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Location Efficient Mortgages: Is the Rationale Sound?

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  • Blackman, Allen
  • Krupnick, Alan J.

Abstract

Location efficient mortgages (LEM) programs are an increasingly popular approach to combating urban sprawl. LEMs allow families who want to live in densely-populated, transit-rich communities to obtain larger mortgages with smaller downpayments than traditional underwriting guidelines allow. LEMs are premised on 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. This paper employs records of over 8,000 FHA-insured mortgages matched with data on various measures of location efficiency to test this proposition. Our results suggest that it does not hold and that LEMs-like other low-downpayment mortgage programs-will raise mortgage default rates. This cost must be weighed against any potential anti-sprawl benefits LEMs may have.

Suggested Citation

  • Blackman, Allen & Krupnick, Alan J., 1999. "Location Efficient Mortgages: Is the Rationale Sound?," Discussion Papers 10658, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10658
    DOI: 10.22004/ag.econ.10658
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    Cited by:

    1. Louis-Gaëtan Giraudet & Anna Petronevich & Laurent Faucheux, 2021. "Differentiated green loans," Post-Print hal-01890636, HAL.
    2. Guerra, Erick & Caudillo, Camilo & Goytia, Cynthia & Quiros, Tatiana Peralta & Rodriguez, Camila, 2018. "Residential location, urban form, and household transportation spending in Greater Buenos Aires," Journal of Transport Geography, Elsevier, vol. 72(C), pages 76-85.
    3. Coulombel, Nicolas, 2018. "Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access," Transport Policy, Elsevier, vol. 65(C), pages 89-105.
    4. Giraudet, Louis-Gaëtan & Petronevich, Anna & Faucheux, Laurent, 2021. "Differentiated green loans," Energy Policy, Elsevier, vol. 149(C).

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