Sprawl

[mister.shoes]

When applying for a mortgage, they conveniently ask for your (and your co-signer, if applicable) place of work. I would assume that this "location-efficient" test scenario took each individual's place of work into consideration in the formula. I can't imagine it would involve one big metro-area-wide formula that is applied equally to everyone.

[xandrex]

A mortgage in Uptown is going to have much better access to all metro jobs than something in say, Chaska. My intuition would be that a location efficient mortgage would hurt the exurbs most.

And living in Uptown, even if you commuted to UHG every day, you'd probably drive much less overall than someone that commuted 18 miles round trip but lived in a low density suburb, so you're transportation costs are still lower. Actuarial science is a thing, so I'm sure banks have oodles of data to massage to figure out what locations are lower risk than others.

Of course it doesn't really matter where most of the jobs are if your job isn't there. For all the bank knows, you'll stay in that same company for 20 more years.

I don't really question what you're saying. Certainly you're more likely to walk/bike/bus if you live in Uptown rather than, say, Plymouth. But I also know Minneapolis residents who live in the core who drive literally everywhere (I have no doubt they put on 12,000+ miles a year) and some suburbanites who live near their work and take advantage of alternative methods as much as possible. It seems that unless the mortgage companies are actually asking for odometer readings on your cars, then it might simply end up as a subsidy for those who live in the core/inner-ring but like to drive a lot.

I'd also like to say that I support this idea in general. I live just outside of downtown, use transit a lot, and generally like the idea of being rewarded for being more efficient from a transportation/living point of view. But there are kinks that I think would need to be worked out.

[Wedgeguy]

IT would be nice to have some urban subsidies. As of now all we do is subsidies the exurbs with more roads and strip malls

[FISHMANPET]

I would bet that last part is very likely. My guess that everything is done "on average" which is pretty much how these things are now anyway. "On average" someone living in Uptown is going to drive less than the "average" person living in Plymouth, etc etc. You could get a guy that lives in Plymouth and works from home and buys everything from Amazon and has his groceries delivered that can't afford as much mortgage because his "average" transportation costs are higher, and the person you describe that lives in Uptown that drives everywhere who can afford more house because their "average" costs are lower. Thems the lumps I guess.

[RailBaronYarr]

Just like the mortgage company only knows your current salary (and recent history), they can only know your current work location (and recent history). If they can use actuarial data to say a person with XX background working at YY company living ZZ miles from it and within QQ minutes/miles of some percentage of the region's jobs (or even go a step closer and filter by educational background and work experience), they can predict, "on average," what your likely transportation expenditures will be over the course of the mortgage. Nothin is stopping a bank from asking your wage/job as of today even though you may choose to take one at a lower pay, have one person stay home with kids, etc in the future. Why not job location?

I mean, this calculator says that holding constant family size (3) and income ($80-99k), a household in 55408 (CARAG) will pollute 58.6% less than one in 55347 (EP) via transportation. Yes, this model is slightly flawed (that same calculation assumed less air travel just by living in an urban enviro, something I question), but I would bet HH miles driven per year in those zip codes follow a similar ratio.

[go4guy]

Determining a mortgage based on your location is called Redlining, or reverse redlinging. It is a highly illegal practice, and will never fly.

On your mortgage, you are asked your employer's location for a few reasons. One, is because they have to verify your employment. And two, they need to ensure that is going to be your primary residence and not a second/investment home. If you are buying a home in Brainerd, and you work in Minneapolis, then you need to explain why that is.

[RailBaronYarr]

We're not talking about using the home's location to block mortgages. We're talking about a more nuanced approach to determine how much house a person/family can afford based on their likely transportation costs. If anything, something like this would do well to encourage MORE people and businesses to locate in historically distressed areas as mortgages where people live multimodal lifestyles could end up paying less to own a house.

[mplsjaromir]

Determining a mortgage based on your location is called Redlining, or reverse redlinging. It is a highly illegal practice, and will never fly.

That is not an accurate definition of Redlining. Redlining refers to the practice of systemic disinvestment based on racial composition. One could say that it was a race neutral policy since FHA policies at the time only instructed banks not to invest in 'mixed neighborhoods'. It negatively affected black communities since few entirely black neighborhoods existed. It gave great incentive to white flight and was just another federal policy that marginalized persons of color.

Of course banks look at your location to determine the terms of a loan and its viability! A mortgage for a 1,200 sq foot home in the Upper East Side of Manhattan or the city of Aspen is going to be wholly different than a mortgage for a 1,200 sq home in a distant suburb in stagnant metro area. Location, Location, Location is the first rule of real estate.

[go4guy]

But that location location location is determined by an appraisal and third party market data of the neighborhood. That 1200 sq ft home is not going to cost the same in those locations, which is obvious to anyone. And the appraisal is what determines that. And the location is not going to change your interest rate. Your CLTV might be capped due to a rural location, but that is pretty much it.

Distance from work centers should have nothing to do with the terms of a mortgage loan. A person driving 30 miles in a Prius will probably use the same gas as someone driving a Hummer 5 miles from work. There is also a thing called personal responsibility. If a person is not willing to budget and determine on their own how much they can afford in a house based on their own costs, then they are an idiot. Plain and simple.

[xandrex]

Just like the mortgage company only knows your current salary (and recent history), they can only know your current work location (and recent history). If they can use actuarial data to say a person with XX background working at YY company living ZZ miles from it and within QQ minutes/miles of some percentage of the region's jobs (or even go a step closer and filter by educational background and work experience), they can predict, "on average," what your likely transportation expenditures will be over the course of the mortgage.

I think if they linked it to employment and location of the mortgage, I could more fully support it. Perhaps reward proximity to job in general as well as a density bonus for the home's location. That could also make a subtle shift toward encouraging more people to want to 1) live in more dense locations and 2) shift more jobs downtown (because the densest residential areas of the metro are near the CBD).

[mattaudio]

Keep in mind mortgage investors are worried not only about preventing default, but about preserving assets in case of foreclosure. So it's not just about where a mortgagor lives relative to their work. It's how many jobs are easily accessible from the property. We can get that from sources such as census data. It's also reflected in the marketplace, correlated to price per square foot. From what I've heard, these are the standards being considered, more than standards related to a particular mortgagor at origination. It's more about risk management in a general sense.

[FISHMANPET]

But that location location location is determined by an appraisal and third party market data of the neighborhood. That 1200 sq ft home is not going to cost the same in those locations, which is obvious to anyone. And the appraisal is what determines that. And the location is not going to change your interest rate. Your CLTV might be capped due to a rural location, but that is pretty much it.

Distance from work centers should have nothing to do with the terms of a mortgage loan. A person driving 30 miles in a Prius will probably use the same gas as someone driving a Hummer 5 miles from work. There is also a thing called personal responsibility. If a person is not willing to budget and determine on their own how much they can afford in a house based on their own costs, then they are an idiot. Plain and simple.

The size of a mortgage you can get is partially based on your ability to repay that mortgage (and also the value of the loan relative to the asset, if the bank needs to foreclose). So what we're talking about here is a mechanism for people who have lower transportation costs to use that saved money to buy a bigger house. It's not about buying something you can't afford, it's about the banks recognizing that different things are affordable to different people.

It amazes me the mental gymnastics the suburban mind will go through to preserve the status quo.

[go4guy]

No, this is just you trying to find another way to limit what suburbanites can buy, and force them into the core. A place they very well may not want to live. People want different things. Not everyone wants what you want. And I am a person who lives in a first ring suburb and will be moving towards the core soon. So dont think I live out in Chaska.

Should banks also be putting lending restrictions on people with kids? Kids cost a whole heck of a lot more than transportation costs. What about people who eat out more? Go to concerts?

I have a friend that owns a home in Plymouth, past 494 and works downtown. His transportation costs are less than mine, and my commute is a third of his. So if the bank would have told him he was riskier than me because they assume his transportation costs are higher, then they would be idiots.

It is amazing the mental gymnastics you will go throu to try and drive people to live in the way that you do, even though it doesn't fit them at all.

[mattaudio]

Smart mortgage investors care about more than just current appraisal of a property or portfolio. They care about the future viability of that investment. Investors of all types hire economics, forecasters, and analysts to figure out how the price of an investment relates to its potential. Risk management. Would you buy gold, or a muni bond, or a security, just because it's a certain price? Or would you try to figure out if it is likely to increase or decrease in value? It's all a comparison of current price with expected future price. It's not mental gymnastics, it's risk management.

[dbaur31]

I don't see how the idea behind all this is any more complicated than saying if a bank(s) has a mathematical model that their data says mitigates their risk better on average than previously existing models, they should be able to use that to the extent it does not discriminate on the usual grounds we find objectionable (race, gender, religion, etc.). A model does not need to predict perfectly in all cases to be robust generally. It seems similar to the way FICO scores are penalized if you've never had any debt and if you never use any revolving credit. Their models say those who regularly use moderate amounts of credit are less risky than those who never do. For those who manage their money really well and avoid credit, these models will "unfairly" punish them. This seems similar.

[Anondson]

It isn't just the commute to work. It also includes the possibility you must drive for everything. Drive for groceries. Hardware store. Liquor store (!). Coffee. Fast food.

And the length of a commute is a financial cost. Distance from everything that ends up requiring a car (car payments, maintenance, fuel, insurance...). It all adds to total cost of ownership.

We came through a period where people were urged to "drive until you qualify" with little diligence put to evaluating the burden to the pocketbook would be. While the home payment would be 30%, unexpected transportation costs were getting up to 30% for the furthest out locations. 60% for total cost. So people were punished for being "bad at math" and the banks didn't think it was going matter.

[FISHMANPET]

I don't think there's anything about this making people ineligible for mortgages, it's about making more people eligible for mortgages. So I'm not sure how expanding housing options and not limiting anybody is somehow forcing people into something they don't want.

And I'll say it again, just because someone wants to live in the suburbs doesn't mean other people should subsidize that choice. The suburban mind has somehow deluded itself into thinking that their choice to live in the suburbs is a moral right and any attempt to make it easier for someone else to live where they want to, if it isn't the suburbs, is seen as some attempt to force people into the city. Which, surprise, the opposite of that, and in many ways the status quo, is to force people to live in the subrubs, a place they don't want to be.

I don't care where people live, as long as they bear the full cost of that decision. I think something like this makes it easier for people with lower transportation costs to buy more house in the city. If someone wants to take advantage of that to buy more house than they can afford because they keep their transportation costs high, then that's dumb and they're going to get foreclosed on. I could just as easily get a mortgage in the suburbs and then immediately quit my job, that would also be dumb.

[go4guy]

You are assuming all of this. You cannot assume when determining risk. What if the person downtown has a truck and still commutes to work, drives to run all of their errands, and goes on many road trips. How is that any different?

This notion that everyone should live in the core, and that when you live in the core, you save all this money is just insane. For the amount of living space I have, it would cost at least double what I pay right now to live in a location where I could actually walk to run all those errands. I would still have a car, and insurance for that car, and would still have to pay for gas. The fact that I dont live downtown is fiscally responsible. I would be at a greater risk of being unable to pay my mortgage if I lived downtown.

[Anondson]

Why do you keep assuming there is a notion "you should live downtown". That is unfair hyperbole. It isn't being said.

[FISHMANPET]

That's YOUR choice, and that's how you DECIDE to live your life, that doesn't mean that everyone else is going to make those same decisions.

No, you can't pick up your suburban life and drop it into the city and expect everything to stay the same. And nobody is forcing you to do that. Yet you're trying to vilify someone that wants to change their life to make that possible?