Fannie Mae came out with a mortgage program several years ago called Smart Commute that rewarded people for buying homes near public transportation by granting them additional buying power.It wasn't well-promoted and pretty quickly joined the land of the living dead --still ongoing but not actively marketed -- where it resides even today. But Fannie Mae ( FNM) was simply a few years ahead of itself, I think. If the executives over there had any sense, they would pull the Smart Commute mortgage out of their files, dust it off and promote the heck out of it. When the lending concern introduced this mortgage in 2003, credit was cheap, as were gasoline prices, but housing prices were high and rising higher. This made exurban homes, with their double-high ceilings, multiple bathrooms and long drives to job centers the best option for many homebuying families. In fact, Patrick Hare wrote an article for Sierra magazine three years ago explaining how mortgage-industry practices actually have encouraged borrowers to choose sprawling suburbs over compact, environmentally efficient cities. City dwellers and suburbanites both use about 55% of their income on housing and transportation, he explains, but in different proportions. Suburbanites, who have car payments, insurance and gas tanks to fill, spend about 30% of their income on housing and 25% on transportation. City folks have bigger housing bills that eat up 45% of their budget, but if they use public transit they spend only 10% of their earnings getting around. This is how they can afford their more expensive digs.
Unfortunately, lenders are often stuck on the suburban model, and consider only one-third of a borrower's income when they decide how much mortgage debt he or she can afford. Hare concludes that this makes urban housing "mortgage unaffordable" and pushes people to the car-reliant 'burbs. He calls it "transportation redlining." The SmartCommute program was meant to address this imbalance. For borrowers willing to buy a home within a quarter mile of a public bus stop or half a mile of a commuter rail stop, lenders would calculate the savings from using public transit and consider it additional money that could go toward a mortgage, thereby increasing urban-dwellers' buying power. While the program is still theoretically available from Countrywide Financial ( CFC) and smaller regional lenders, a public relations contact at Fannie Mae had never heard of it and even after some digging couldn't send me information about it--a sign of how much they've let it wither. (Interested consumers can call Fannie Mae at 800-732-6643.) Here's why it's time to actively revive it:
When it first came out, gas prices were far south of the $4 mark they've crossed for some Americans lately. Gas is now pricey enough that Americans are changing their lifestyles to avoid driving. Public transportation ridership hit its highest level in 50 years in 2007, according to the American Public Transportation Association. It was up more than 2% from the previous year, to 10.3 billion trips. Denver, Atlanta, Philadelphia, St. Louis and Santa Fe are among the cities that have seen double-digit growth in use of their transit systems. They are also cities where the Smart Commute program was offered when it first came out. Additionally, the blogosphere is rife with predictions that sustained high gas prices are the beginning of the end of the suburbs. Note Peter Viles' comments on a Los Angeles Times blog about outlying suburban home prices weakening more than others. On the New York Times ( NYT) Freakonomics blog, Daniel Hamermesh notes that in Washington, D.C., homes near metro stations are maintaining their value better than others; homes near metro stations in the city are even rising. While reports of the dying American suburb are no doubt greatly exaggerated, people are absolutely getting out of their cars and moving closer in to jobs, shopping and services. Mixed-use, transportation-friendly communities have been on developers' radar for a few years now.
Folks who choose smaller homes in more denser, more convenient neighborhoods also happen to be living greener lives and should be encouraged in their choices. Surely they would appreciate a mortgage that gives them more buying power and allows them to downsize a little less than they would otherwise have to. Luckily, other regional programs have sprung up to offer straphangers better deals. Residents of Chicago, Los Angeles, San Francisco or Seattle can look into Location Efficient Mortgages -- a program launched by the NRDC in conjunction with transportation and community groups -- available from local branches of Countrywide, National City Mortgage ( NCC) and others. House-hunting Bostonians can consider the "Take the T" program initiated by MassHousing and available from local lenders including the Hingham Institution for Saving ( HIFS) It's great when institutions like Fannie Mae come up with innovative programs that can both help individuals and have a broad policy impact. It's better still when they realize what a good and timely idea they have and run with it. I hope Fannie Mae gets its act together to do just that.