Work by John Holtzclaw, as reported in the

Work by John Holtzclaw, as reported in the July/August 1997 issue of New Urban News, demonstrated that vehicle miles traveled per household drops drastically in high-density urban areas. That work has become the basis for the location-efficient mortgage (LEM), which is being pilot-tested in Chicago starting in the spring of 1998. The LEM offers households in urban areas the opportunity to use savings in transportation costs to qualify for a mortgage. The lower transportation costs are achieved through the accessibility of a city — in this case, Chicago — where distances between home, shopping, work and civic amenities are generally shorter, allowing more opportunities to walk, take public transportation or ride a bicycle. Depending on where they live and what their transportation costs are, households may be able to quality for a home loan up to $23,000 larger than they would ordinarily. As part of the mortgage payment, households purchase a half-price transit pass, good for any member of the family on all forms of public transportation, from the Chicago Transit Authority. This pass will add about $44 a month to the mortgage payment, according to James K. Hoeveler, LEM project director for the Center for Neighborhood Technology (CNT), one of the groups managing the program. The potential savings from such a pass are significant if per household cars are reduced. The pass costs just over $500/year, while the average cost of a car — including payments, insurance, gas and maintenance — is $5,000 to $7,000 a year, says Hoeveler. The Federal National Mortgage Association (Fannie Mae) has endorsed the LEM project — which means that bankers can sell these mortgages. “Fannie Mae’s leadership and willingness to step forward has been instrumental in bringing this about,” says Hoeveler. Three organizations — CNT, the Natural Resources Defense Council and the Surface Transportation Policy Project — created the LEM Partnership to conduct the research, formulate the mortgage product and make it available on the primary and secondary mortgage marketplaces. Setting up the program cost $750,000, paid for by grants, and running it will require little ongoing expense, says Hoeveler. “This is a market-driven program — it’s not a subsidy,” he says. Even the transit authority, which operates an extensive but underutilized system, is likely to gain revenue from the discount passes. The partnership is looking to roll out similar programs in other urban areas.