Location Efficient Mortgages: Is the Rationale Sound?

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.


Issue Date:
1999
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/10658
Total Pages:
27
Series Statement:
Discussion Paper 99-49-REV




 Record created 2017-04-01, last modified 2017-08-23

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