#103 Jan/Feb 1999

Location Efficient Mortgages

When families rely on public transit rather than automobiles for travel needs, they spend less on transportation. When they shop, work, recreate, socialize, learn, and participate in their local community, […]

When families rely on public transit rather than automobiles for travel needs, they spend less on transportation. When they shop, work, recreate, socialize, learn, and participate in their local community, they don’t need to travel as much to begin with. These are the simple ideas underlying the Location Efficient Mortgage (LEM).

LEMs work by quantifying monthly transportation savings for residents of densely populated transit-rich urban areas, compared to a typical suburban household. In Chicago, for example, the savings can range from $350-$650 per month. If a borrower chose a LEM, a portion of this savings would be integrated into the calculation of borrowing capacity as part of the customary mortgage application process. This would create significant “stretch” in borrowing capacity, allowing more people to qualify for mortgages on often-pricier city homes.

LEMs are the brainchild of the LEM Partnership, founded in the spring of 1995 by the Center for Neighborhood Technology (CNT), the Natural Resources Defense Council (NRDC), and the Surface Transportation Policy Project (STPP). The Partnership sees LEMs as a way to kill many birds with one stone: encourage public transit use and compact development; increase homeownership opportunities among low- and moderate-income families; support local neighborhood businesses; and discourage excessive auto use and suburban sprawl. It’s not just advocates who see opportunity in LEMs, however. Financial institutions also like LEMs because they fit community-lending criteria and help them break into low- and moderate-income markets.

The LEM Partnership’s first project was to research accessibility at demonstration sites and develop computer mapping software that calculates location efficient savings by the borrower’s situation and location of the home in question. The next step was building relationships with important players. Having convinced Fannie Mae to try out the LEM – a key to allowing the idea to become a reality – the Partnership is near to completing negotiations on agreeable underwriting criteria and is finishing negotiations with Chicago Transit Authority regarding a three-year family transit pass for LEM borrowers. These passes would be part of the LEM mortgage package, further ensuring a reduction in driving and helping LEM borrowers make the best of the transit system and their new neighborhood.

Next come demonstrations in Chicago, Seattle, and the Fillmore housing development in Los Angeles. The first site, Chicago, is almost ready. The LEM Partnership will soon swing into marketing gear, advertising in public transit stops, local papers, and through lenders. Neighborhood Housing Services and other housing groups will help with education. First loans are expected by the end of January.

Looking past the three demonstrations, Peter Haas of CNT says the partnership is considering creating a separate entity to promote location efficiency. This group would work on bringing LEM to other cities, such as Portland, Philadelphia, Cleveland, and Baltimore, which are only a few of those that have expressed great interest. Urban planning agencies, mortgage lenders, community development organizations, and housing advocacy groups interested in the LEM should see:


Center for Neighborhood Technology
2125 West North Avenue
Chicago, IL 60647

Natural Resources Defense Council
6310 San Vicente Blvd., # 250
Los Angeles, CA 90048

Donna Liu
Natural Resources Defense Council
71 Stevenson Street # 1825
San Francisco, CA 94105
e-mail: [email protected]


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