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Location‐Efficient Mortgages: Is the Rationale Sound?
Author(s) -
Blackman Allen,
Krupnick Alan
Publication year - 2001
Publication title -
journal of policy analysis and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.898
H-Index - 84
eISSN - 1520-6688
pISSN - 0276-8739
DOI - 10.1002/pam.1021
Subject(s) - underwriting , urban sprawl , shared appreciation mortgage , mortgage insurance , payment , mortgage underwriting , business , collateralized mortgage obligation , actuarial science , secondary mortgage market , finance , insurance policy , land use , civil engineering , casualty insurance , engineering
Location efficient mortgage (LEM) programs are an increasingly popular approach to combating urbansprawl. LEMs allow families who want to live in densely populated, transit‐rich communities to obtain alarger mortgage with a smaller down payment than traditional underwriting guidelines allow. LEMs are premised onthe proposition that homeowners in such “location‐efficient” areas can safely be allowed tobreach underwriting guidelines designed to prevent mortgage default because they have lower than averageautomobile‐related transportation expenses and more income available for mortgage payments. This paperemploys records of more than 8000 FHA‐insured mortgages matched with data on various measures of locationefficiency to test this proposition. The results suggest that it does not hold and that LEMs—like otherlow‐down‐payment mortgage programs—will raise mortgage default rates. This cost must beweighed against any potential anti‐sprawl benefits LEMs may have. © 2001 by the Association forPublic Policy Analysis and Management.