Location-Efficient Mortgages: Is the Rationale Sound?

Allen Blackman and Alan Krupnick
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Alan Krupnick: Quality of the Environment Division, Resources for the Future, Postal: Quality of the Environment Division, Resources for the Future

Journal of Policy Analysis and Management, 2001, vol. 20, issue 4, 633-649

Abstract: Location efficient mortgage (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 a larger mortgage with a smaller down payment 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 more than 8000 FHA-insured mortgages matched with data on various measures of location efficiency to test this proposition. The results suggest that it does not hold and that LEMs-like other low-down-payment mortgage programs-will raise mortgage default rates. This cost must be weighed against any potential anti-sprawl benefits LEMs may have. © 2001 by the Association for Public Policy Analysis and Management.

Date: 2001
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Working Paper: Location Efficient Mortgages: Is the Rationale Sound? (1999)
Working Paper: Location Efficient Mortgages: Is the Rationale Sound? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jpamgt:v:20:y:2001:i:4:p:633-649

DOI: 10.1002/pam.1021

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