In Chicago, more than three dozen police officers have bought homes in the city with specialized mortgages that include loans of up to $5,000 they may never have to repay.
In Milwaukee, workers at Harley-Davidson Corp. headquarters can get a $2,500 forgivable loan to buy a home, as long as the home is within walking distance of the headquarters in an inner city area west of downtown.
In schools, colleges, universities and hospitals scattered about the country, from New Orleans to Portland, Ore., employees have been offered enticing mortgage deals to live in neighborhoods near their work.
Such programs are among a growing group of niche home loans created to serve specific social purposes beyond the general trend toward making more loans available to lower-income home buyers.
While most mortgages still are standard financial products, over the years targeted loans have been introduced to save energy, revamp decaying communities, help companies and public employers keep their staffs and even support group homes for the mentally and physically disabled.
And a new loan of that type is under development by a partnership including the Chicago-based Center for Neighborhood Technology. The group is promoting what it calls a location-efficient mortgage to encourage people to buy homes near, and presumably make use of, public transportation.
The LEM Partnership, which also includes the Natural Resources Defense Council in San Francisco and the Surface Transportation Policy Project in Washington, is working to get government-chartered housing finance giant Fannie Mae to back a pilot project in Chicago for the mortgage.
The mortgage would take into account the cost difference between driving to work and taking public transportation in computing how large a loan a buyer could qualify for.
That could have an impact of tens of thousands of dollars in the price of a home a buyer would be able to purchase, according to Kim Hoevler, LEM program director for the Center for Neighborhood Technology.
Hoevler said a partnership study done over the last couple of years showed that a typical suburban Chicago household with two or three cars and no convenient public transit spends $662 a month for transportation, all in auto costs; a city household with only one car and a transit pass spends a total of $344.
In the study’s example of a household with an income of $30,000 a year seeking a 30-year fixed-rate mortgage at 8 percent, the suburban household could get a mortgage of about $92,000, while the city household would qualify for a $115,000 mortgage. (The actual figures would differ for different incomes and mortgage terms, but the disparity would be similar.)
The same household with no car and two transit passes could qualify for a maximum mortgage amount of $123,614, the study indicated.
“It’s not rocket science,” said Hoevler. “If you lived in the suburbs and move to the city, you use your car less or don’t need it at all.”
Hoevler also cited other studies showing that proximity to public transportation could significantly increase home values. Higher loan amounts could help families buy such homes, he noted.
A pilot program could be announced some time this summer, making use of software that would evaluate the transportation aspect of a mortgage application based on reasonable walking distances (half a mile for a train, a quarter-mile for a bus). It also could include prepaid, discounted transit passes to be purchased out of mortgage funds.
The Center for Neighborhood Technology has high expectations for the program, hoping it will be reinforced by a reaction against suburban sprawl and a rise of closer-knit, traditional communities.
“We think this will use the unsubsidized force of the marketplace to increase homeownership and result in smarter households, better land use patterns, more transit use and a better environment,” said center president Scott Bernstein.
The concept for the program grew partly out of the energy-efficient mortgage, a loan that has been around for a couple of decades that applies savings realized in an energy-efficient house to increase the amount of the mortgage for which a buyer can qualify.
Energy-efficient mortgages have never gained much momentum, perhaps because they were born during the late 1970s energy crisis, now a distant memory. But they were notable for popularizing the concept that home loans could be used to further very specific public policy goals.
In a way, it could be argued that the country’s mortgage finance system, which was structured in its current form during the Depression and has become a model for the rest of the world, is grounded in the policy goal of encouraging home ownership.
In fact, federal housing policy is enshrined far less in programs of the Department of Housing and Urban Development than it is in the federally underwritten housing finance network, suggested Nicholas Retsinas, former Federal Housing Administration commissioner at HUD and now director of Harvard University’s Joint Center for Housing Studies.
He pointed out that the value of the mortgage interest tax deduction alone is far greater than the HUD budget, while programs such as FHA insurance and the federal charters for Fannie Mae (Federal National Mortgage Association) and Freddie Mac
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(Federal Home Loan Mortgage Corp.) add to the scope of government home finance involvement.
“In some ways the housing finance system in this country is undergirded by the government,” he said. “I know it’s not politically fashionable to say so, but one of the reasons it works is because of the nexus between the private sector and government.”
But Retsinas added that the government emphasis on helping to provide mortgages (rather than, say, encouraging housing production) has had the effect of encouraging mobility and decentralization.
“It’s been a people policy rather than a place policy,” he said.
Among the most widely used niche programs that concentrate more on place are the employer-assisted mortgages, which often give help to home buyers employed by companies, municipalities, hospitals and schools only as long as the buyers agree to live in a certain location.
Loyola University, for instance, has offered faculty and staff at the Lakeshore campus a below-market-rate loan to be used as a down payment if they buy a home in the Edgewater-Rogers Park area.
Loyola started the program in 1977 and extended it to the medical center in Maywood in 1994. Since its inception, 240 Loyola employees at the Lakeshore campus have bought homes using the program, representing $8.1 million worth of housing purchased in the neighborhood.
“This was a wonderful benefit for me,” said Anne Lombard, 34, director of new student programs at the Lakeshore campus, who bought a one-bedroom condo in Rogers Park near the lake early this year, using a $10,000 Loyola loan with a 6 percent interest rate for her down payment.
“I would have had to wait much longer to do it the traditional way, because I’m still paying off student loans,” she said. “Loyola is very supportive of the neighborhood in a number of ways, but the fact that they support the staff buying in the neighborhood is wonderful.”
Employer-assisted programs received a big boost in 1991 when Fannie Mae began underwriting them, and the secondary market stalwart is participating in 40 such plans around the country, many of them targeting cities or particular neighborhoods.
They include a Baltimore program to get city employees to live within city limits; a New Orleans program involving four universities that originally targeted specific neighborhoods but was then expanded to the entire city; and a hospital program in Portland, Ore., that focuses on a specific deteriorating neighborhood around that institution.
Most of the area-targeted loans involve cities, but they also have been used in at least one rural area where a school district has had difficulty recruiting teachers.
While only about 630 home buyers had participated in Fannie Mae-sponsored targeted programs around the country as of the end of last year, Fannie Mae regards them as a stimulant to creativity in the mortgage industry.
“We very much see ourselves as having a leadership role for innovation,” said Fe Morales Marks, vice president of Fannie Mae’s national housing impact division. “It’s an important step for the industry.”
One of the few private companies that has picked up on the idea is Harley-Davidson in Milwaukee. Since late 1996, the motorcycle maker has been offering $2,500, no-interest loans to employees who buy a home within about two miles of company headquarters west of downtown Milwaukee. If after three years the employee remains in the home, the loan is forgiven.
One of a half-dozen Harley employees who have bought a home under the walk-to-work program (which was developed in conjunction with an agency set up to promote city living called Select Milwaukee) is computer programmer Russell Morgan.
“I do walk to work, and I can see Harley from my front porch,” said Morgan, 25, who has been working for the company a little more than a year.
Without the program, Morgan said he would have had to wait longer to become a homeowner.
“There are a lot of added expenses you don’t know about and having the extra money from Harley helped me obtain the house faster,” he said.
The 1908-vintage frame two-flat he bought for $65,000 last summer is in Milwaukee’s Cold Spring area, a neighborhood of grand old homes that fell on hard times but has recently been attracting new buyers interested in fixing up Victorian gems.
He sees a key purpose of the program as keeping up the momentum of revitalization.
“It helps the neighborhood, with people coming in and owning houses and keeping them up. These people won’t stand nonsense and illegal activities,” he said.
An even more influential deterrent to illegal activities could come from targeted loan programs to place police in certain neighborhoods, one of which is under way in Chicago.
The city Department of Housing said that about 40 police officers have bought homes under the program, which began in 1995 and offers a $5,000 loan forgivable over five years for police who buy and live in one- to four-unit houses in lower-income areas of the city.
That deal looks even better when coupled with a federal demonstration program that offers HUD homes to police officers at half their listed purchase price, said housing department spokeswoman Andrea Smith.
A little-known targeted loan program sponsored by Fannie Mae provides financing for single-family homes or two-flats that are used as group facilities for the physically and mentally disabled, including AIDS patients and people recovering from substance abuse.
Such homes, which typically have four to six people living together with a counselor, are usually run by non-profit social agencies that historically had difficulty getting standard, market-rate residential mortgages.
That is not so much because they often arouse neighborhood opposition–which does happen–but because they are a mixture of business and residential uses of which lenders are wary, said Stephen Allen, senior business manager of Fannie Mae’s housing impact division.
The program, which started in 1993, has underwritten $75 million worth of loans for such facilities around the country, Allen said.
“Our feedback has been very positive. There are not a lot of alternatives for people trying to provide group homes,” he added.