Location Efficient Mortgages: Is the Rationale Sound?

Alan Krupnick () and Allen Blackman

RFF Working Paper Series from Resources for the Future

Abstract: 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.

Keywords: urban sprawl; location efficiency; mortgage; default (search for similar items in EconPapers)
Date: 1999-08-01
New Economics Papers: this item is included in nep-geo and nep-ure
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Related works:
Journal Article: Location-Efficient Mortgages: Is the Rationale Sound? (2001)
Working Paper: Location Efficient Mortgages: Is the Rationale Sound? (1999)
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