# Presentation: 698943

## AIR Innovations Conference

*Location Efficient Mortgages*
*August 12, 2004*
*Jacky Grimshaw*
*Center for Neighborhood Technology*

## LEM Partnership

- Center for Neighborhood Technology-- Chicago-based, 26 years of experience in housing, transportation, and air quality
- Natural Resources Defense Council -- Using law and science to protect the environment
- Surface Transportation Policy Project -- Washington-based transportation policy reform organization

## Why create a LEM?

- Response to affordable urban home ownership
- Consideration of transportation costs in relation to location and transportation options
- Examination of the disincentives to urban ownership
- Mortgage underwriting criteria
- Sticker Shock from urban costs

## Median Household Spending

## Local Characteristics That Shape“Location Efficiency”

- Residential density at the community level
- Access to public transit services
- Access to shopping, services, cultural amenities, and schools
- Pedestrian “friendliness” of sidewalks, bikeways, benches, lighting, plantings

## What’s the difference for a median income borrower?3-person household with one car, a $42,000 gross income, location efficient neighborhood, no other monthly debt, 5.6% interest rate, and a 30-year term

***Traditional Mortgage:***
- $153,593 home
- $980 monthly PITI
- 5% down payment

***LEM:***
- $339 monthly LEV
- $210,641 home
- $1,344 monthly PITI
- 3% down payment

***The LEM means ***_***$57,048 more***_*** home buying power***

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| --- |

## Other Examples of LEM Impacts

**Assumptions:**	**5.6% interest rate, 30-YR fixed rate mortgage; no other monthly debt; 2% of payment for taxes and insurance.**

|  | Traditional |                    

                   Location Efficient Mortgage |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Income | Mortgage | $100 LEV | $200 LEV  | $300 LEV  |  $400 LEV |
|  $40,000  |  $138,965  |  $178,964  |  $184,177  |  $189,389  |  $193,609  |
|  $50,000  |  $173,706  |  $222,402  |  $227,614  |  $232,827  |  $238,040  |
|  $60,000  |  $208,447  |  $265,840  |  $271,052  |  $276,265  |  $281,477  |
|  $70,000  |  $243,188  |  $309,278  |  $314,490  |  $319,703  |  $324,915  |

## How much more of Cook county is affordable to the working poor when we count transportation costs?

***How much more of Cook county is affordable to the working poor when we count transportation costs?***

## Who is Likely to Apply for a LEM?

- Moderate to middle income families
- Interested in living in an urban community
- Prior experience with public transportation
- Regular or predictable travel patterns

## Key Features of the LEM

- Family transportation savings “stretch” income/expense ratios
- Fully insured, 15- to 30-year, fixed rate mortgage product
- Single-unit, owner-occupied principal residences, including condos and town homes
- Loan-to-value ratio (LTV) of 97%
- Long-term total debt/income ratio of 45% with location advantage included

## LEM Uses Standard Borrower Qualifying Features

- Credit and income history
- Employment history and stability
- Front-end and back-end ratio calculations
- Professional property appraisal

## Underwriting Criteria

- Minimum borrower contribution is 3% from own funds
- Minimum PITI reserves are two months
- Qualifying ratios with Location Efficient Value (LEV) added to income:
- 35% maximum housing ratio
- 45% maximum debt-to-income ratio

## Underwriting Criteria (con’t)

- Qualifying ratios without Location Efficient Value (LEV) added to income:
- 39% maximum housing ratio
- 49% maximum debt-to-income ratio     (may go higher with compensating factors but cannot exceed 50%)

## Home Buyer Education

- Pre-purchase home buyer education is required
- Curriculum includes additional module on pitfalls of new credit after closing

## Other LEM Features

- Transportation data monitored by a voluntary annual survey for 3 years
- Key household information reported annually to LEM program for research purposes only
- Where available, a transit pass would record basic use data

## Location Efficient MortgageSM  Benefits

- Enables more moderate and middle income families buy homes in urban communities
- Increases use of public transportation
- Supports local economies and amenities
- Improves regional/local air quality and congestion mitigation
- Reduces energy consumption

## The LEM SupportsExisting, Local, and State Policies

## Jacky Grimshaw
jacky@cnt.org
www.cnt.org

*jacky@cnt.org*
*www.cnt.org*