air innovations conference location efficient mortgages august 12, 2004 jacky grimshaw center for...
TRANSCRIPT
AIR Innovations Conference
Location Efficient Mortgages
August 12, 2004
Jacky Grimshaw
Center for Neighborhood Technology
© 2001 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
© 2001 Center for Neighborhood Technology 3
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
© 2001 Center for Neighborhood Technology
Median Household SpendingMedian Household Spending
Misc. Expenses7% Health Care
4%Entertainment
5%
Apparel and Services6%
Alcohol1%
Cash Contributions3%
Food13%
Transportation17%
Shelter35%
Personal Insurance and Pensions
9%
© 2001 Center for Neighborhood Technology
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
© 2001 Center for Neighborhood Technology 6
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 The LEM means $57,048 more$57,048 more home buying power home buying power
© 2001 Center for Neighborhood Technology 7
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
© 2001 Center for Neighborhood Technology 8
How much more of Cook county is affordable to the working poor when we count transportation costs?
© 2001 Center for Neighborhood Technology
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
© 2001 Center for Neighborhood Technology
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
© 2001 Center for Neighborhood Technology
LEM Uses Standard Borrower Qualifying Features• Credit and income history
• Employment history and stability
• Front-end and back-end ratio calculations
• Professional property appraisal
© 2001 Center for Neighborhood Technology
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
© 2001 Center for Neighborhood Technology
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%)
© 2001 Center for Neighborhood Technology
Home Buyer Education
• Pre-purchase home buyer education is required
• Curriculum includes additional module on pitfalls of new credit after closing
© 2001 Center for Neighborhood Technology
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
© 2001 Center for Neighborhood Technology
Location Efficient MortgageLocation Efficient MortgageSMSM BenefitsBenefitsLocation Efficient MortgageLocation Efficient MortgageSMSM BenefitsBenefits
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
© 2001 Center for Neighborhood Technology
The LEM SupportsThe LEM SupportsExisting, Local, and State PoliciesExisting, Local, and State Policies
P reserves op en sp ace
B ette r a ir q u a lity
In c reases tran s it d em an d
H ou s in g
Tran s it O rien ted D eve lop m en t
Takes ad van tag e o fE xis tin g In fras tru c tu re
Im p roves viab ility o fo ld er, in d u s tria l a reas
A ccess to re ta il se rvices
E con om ic D eve lop m en t
S p u rs con s tru c tion o fu rb an h ou s in g
A llows fa ir com p etit ionin h o t h ou s in g m arke ts
In c reases loca tionch o ices to th e b u yer
H ou s in g
P atron ag e o f L oca l S to resan d S ervices
S en se o f com m u n ity
P rid e o f own ersh ip
N e ig h b orh ood S tab ility
L oca tion E ffic ien t M ortg ag e
