Location Efficent Mortgage
Air Date: Week of September 8, 2000
There’s a new home mortgage program that may help curb suburban sprawl. Gary Johnson of Chicago reports on the Location Efficient Mortgage, which offers homebuyers financial incentives to live in the city and use public transportation.
CURWOOD: An innovative loan program that may help put the brakes on suburban sprawl is now being touted by Fannie Mae, the nation's largest supplier of home mortgage funds. It's called the Location Efficient Mortgage, or LEM, and it offers cuts in interest rates and financial rewards for using mass transit to make staying in the city more attractive. The $100 million LEM pilot program was recently unveiled in Chicago. Gary Johnson reports.
(A bus revs up)
JOHNSON: Just off the bus from his job in downtown Chicago, Larry Holzen stops off at the neighborhood cleaners and grocery. He's on his way to the new condo he and his wife Terry have just purchased. Last year the Holzens sold their two old cars and bought a more efficient one, but they rarely use it.
L. HOLZEN: We drive, probably on average, once a week, and that's just to get to places that aren't in our neighborhood, like a grocery store or something that we don't have here. Pretty much everything else we need, like a local grocery store and restaurants, you know, bookstores, everything is within walking distance.
JOHNSON: Terry is a graduate student at the University of Chicago. She enjoys her six-block walk to work.
T. HOLZEN: I guess we could have moved far out to the suburbs and gotten a house with a lawn and everything else, but if we had moved very far out in the suburbs we probably would have had to have gotten two cars, which I don't think we could have afforded for the upkeep and gas and stuff like that. At this point in life, I think both of us just really like city living.
JOHNSON: The Holzens' lifestyle choices helped them qualify for the Location Efficient Mortgage, or LEM. In fact, a short quiz told them they're living the so-called LEM lifestyle. Their home is location-efficient by being accessible to public transit. They're not car-dependent, and they walk to things they need. Compared to a traditional mortgage, the LEM has low three percent down payment. It also allows the savings from using public transit and driving less to be added to total household income on which the mortgage is based.
Scott Bernstein is the founder of the Center for Neighborhood Technology, which developed the program with Fannie Mae, the Natural Resources Defense Council, and the Surface Transportation Policy Project. He's bursting with statistics from the million-dollar study of big city driving habits that led to the LEM.
BERNSTEIN: The number one household expense in America is housing, but the number two household expense is transportation, over 90 percent of which is for driving around. You can roughly count, in America, on one dollar out of five of household expenditures going for driving around. It varies. It's less in Chicago and a lot more in Atlanta and Dallas, but it's still higher than it should be.
JOHNSON: In fact, the Center for Neighborhood Technology research shows that city dwellers, compared to suburbanites, spend one fifth the amount of money on transportation. In the Chicago area, location efficiency increases home buying power by roughly one year's income. In other words, if you make $30,000 a year and live a LEM lifestyle, you can afford $30,000 more house over the life of a mortgage. But it's not just economics that make the LEM attractive. William Able is the commissioner of Chicago's Department of the Environment.
JOHNSON: At a recent press conference, he said the LEM makes environmental sense.
ABLE: The smartest policy, smartest growth policy, is to reuse and recycle our cities. That's exactly what this does. It gets at air quality problems by getting people out of their cars and onto the street and onto public transportation and onto bicycles, and there are clearly few communities within the city of Chicago and few within the nation where there are so many opportunities for that type of walkability.
JOHNSON: Ultimately, the LEM program encourages people to think about how they live and its impact on the environment. Wim Wievel is the dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago.
WIEVEL: One of the interesting things about something like the Location Efficient Mortgage is that it is one of the few policies that very specifically tries to change the way that people live and where people live. And a policy that makes it very clear to people what the cost is that we really pay for being such an automobile-dependent society. So, to get a change in the underwriting criteria, which this essentially represents, that allows more people to buy homes, is very, very good. And if along with that it sends sort of a symbolic message about the cost of sprawl and the possible societal advantages of more concentrated living, that's all to the good.
JOHNSON: Meanwhile, Larry and Terry Holzen are excited about their new, Star Efficient washer and dryer. They purchased the unit with a $900 voucher given to them for taking a Location Efficient Mortgage and living in the city.
L. HOLZEN: Obviously it's more efficient for the environment than I really thought about; it was more a convenience issue.
T. HOLZEN: I just thought we lived like most other people who lived in the city. So it was nice to be rewarded for it, though, that's for sure.
JOHNSON: The Location Efficient Mortgage is also available in San Francisco, Seattle, and Los Angeles. Other cities are currently considering the program.
JOHNSON: For Living on Earth, this is Gary Johnson in Chicago.
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