The transportation-credit mortgage: a post-mortem

Abstract

“Location-efficient mortgages” and “smart commute mortgages” were sponsored by Fannie Mae and made available by lenders in a large number of US cities beginning in 1999. Participants were given a credit to qualifying income that allowed them to borrow more for homes in neighborhoods with good transit access and high population density. We use the term “transportation-credit mortgage” (TCM) to refer to both programs. The TCM was intended to reduce auto use, decrease sprawl, and increase low- and moderate-income homeownership. But there was little demand. Only about 300 loans were made, and both programs had been discontinued by 2008.

Some advocate the TCM's revival. Would this be a good idea? We draw upon interviews with lenders, Fannie Mae officials, and transit agencies; lending data from Fannie Mae; and relevant academic research and theory. The TCM likely generated little market interest because of implementation problems and competitive terms from other loan products. But even if the TCM could be revived, with its implementation problems resolved, it would still be unlikely to meet the intended social goals in most markets. The TCM could even make low- and moderate-income households worse off. More radical changes, and more research, are needed.

Keywords:

• affordability
• mortgages
• regulation
• smart growth

Acknowledgments

Funding for this research was provided by the University Transportation Research Center, Region II and the Dean's office of the Bloustein School of Planning and Public Policy at Rutgers University while the lead author was at Rutgers University. We are grateful to Brian Hirt and Charles Rumfola of Fannie Mae in Philadelphia, who provided confidential loan microdata under a non-disclosure agreement. Many thanks also to our many interviewees, particularly Michelle Desiderio, former manager of the housing and environment initiative at Fannie Mae. Kathe Newman, Phillip Ashton, Elvin Wyly, Julia Sass Rubin, Nancy Wolff, Todd Goldman, Robert Lake, and Stuart Shapiro provided helpful comments on old and new versions of this paper. Rodney Stiles and Kyeongsu Kim provided assistance with data and maps. Thanks also to two anonymous reviewers and to Katrin B. Anacker for their detailed comments, which improved the paper.

Notes

¹Sources: California Department of Housing and Community Development (http://www.hcd.ca.gov/hpd/housing_element/screen12_conservation.pdf); Connecticut Conservation and Development Policies Plan, 2005–2010 (http://www.ct.gov/opm/cwp/view.asp?a=2990&q=383182); Montana Climate Change Action Plan, Final Report, November 2007 (http://www.deq.state.mt.us/ClimateChange/plan.asp); New Mexico Climate Change Advisory Group, Final Report, December 2006 (http://www.nmclimatechange.us/ewebeditpro/items/O117F10150.pdf); US Congress, Written Testimony on Green Resources for Energy Efficient Neighborhoods Act of 2008 (http://www.house.gov/apps/list/hearing/financialsvcs_dem/fanniefae061108.pdf); and “Liberals mulling ‘green mortgage’ plan as election platform plank” The Canadian Press, 6 April 2008 (http://cnews.canoe.ca/CNEWS/Canada/2008/04/06/5211091-cp.html). All accessed on 31 July 2008.

²Sources: “Text of H.R. 6078 [110th Congress]: GREEN Act of 2008,” introduced 15 May 2008 (accessed at http://www.govtrack.us/congress/billtext.xpd?bill=h110-6078, 5 May 2009); and “HUD and DOT Partnership: Sustainable Communities,” joint press release, released 18 March 2009 (accessed at http://www.dot.gov/affairs/dot3209.htm, 5 May 2009).

³Source: Consumer Expenditure Survey, US Bureau of Labor Statistics, All Consumer Units, Series ID CXUTE000801 (Total average annual expenditures), CXUTRG00801 (Gasoline and motor oil), CXUSH000801 (Shelter).

⁴Michelle Desiderio of Fannie Mae reported the estimate of the high figure. Different lenders may have allowed larger or smaller credits to income. The online LEM calculators for three of four cities are defunct, but the calculator still available for Seattle estimates very large credits for high incomes and large household sizes (http://www.locationefficiency.com/calculator). According to Desiderio, such large credits were not allowed by lenders.

⁵Information on the share of SCM loans made in the “standard” and “affordable” variants was not made available by Fannie Mae.

⁶Source: Fannie Mae Smart Commute Mortgage training presentation, (courtesy of Sue Elkins, Community Development Officer at Bremer Bank, Minneapolis MN).

⁷Anecdotal evidence suggests that lender standards during this period were fairly lax. Some banks, such as Washington Mutual, in many cases required no substantiation of income at all (Morgenson 2008).

⁸These dates don't represent origination dates, but are close; TCM loans were delivered as “flow loans,” the overwhelming majority of which are purchased by Fannie Mae 30 to 60 days after origination (Hirt interview).

⁹LEM recipients as a whole had even higher median income when all borrowers are included ($59,520 per year among LEM loans compared to $37,752 per year in SCM areas).

¹⁰FICO loan rates by credit score class were retrieved from web.archive.org using the URL “www.myfico.com/myfico/CreditCentral/LoanRates.asp.”

¹¹Source: Consumer Expenditure Survey, US Bureau of Labor Statistics, All Consumer Units, Series ID CXUTE000801 (Total average annual expenditures), CXUSH000801 (Shelter).