Can living near a train station save your house?
Researchers looked at mortgage defaults in three cities and found something curious -- the chance of foreclosure is higher in neighborhoods more dependent on cars, according to a report by the Natural Resources Defense Council, which included data from Chicago's Center for Neighborhood Technology. The report examined 40,000 mortgages in Chicago, Jacksonville and San Francisco.
The link became more obvious in looking at foreclosures after July 2008, when gas spiked over $4 a gallon, said CNT President Scott Bernstein, who studied foreclosures in the Chicago area. Bernstein found that gas price spikes provide an "early warning" of a rise in foreclosures in car-dependent communities.
"Nobody should be surprised this is happening," said Bernstein, noting that the cost of a gallon of gas doubled between 2000 and 2008. "In the suburbs, two or three cars and all that driving can cost more than the mortgage," Bernstein said. "If gas prices go up, some percentage of people will find those pressures to be too much."
Bernstein isn't saying high gas prices alone caused the foreclosure crisis -- but for people already in trouble because of an interest rate change or a job loss, it was another hole in the boat.
Bernstein think banks should look at "location efficiency" when calculating home loans, because a household that doesn't need two or three cars to get around has lower expenses and is less vulnerable to the budget-crushing impact of higher gas prices. Banks could provide better borrowing terms, like a lower interest rate, to people living in walkable neighborhoods near buses and trains.
Bernstein has testified twice before the U.S. House of Representatives in favor of a provision in the climate bill that would promote location efficient mortgages for first-time homebuyers. The bill has passed the House.
Michael van Zalingen, director of homeownership services for Neighborhood Housing Services of Chicago, found the NRDC report "incomplete." He noted that households facing foreclosure are typically in the red by $1,500 a month, because of job loss, a change in their mortgage cost or some other problem. Getting rid of a car and being able to take the train might save $200 a month, but that's not enough.
"Fixing the transportation issue is not going to get those costs in line," said van Zalingen. "If everyone had free excellent public transportation, at least 80 percent of the families in foreclosure would still be in foreclosure."
Van Zalingen acknowledged that loan underwriting should take a closer look at the household budget to see if someone can really afford a loan, and transportation costs would be a part of that. "I do think the government could provide an incentive for a person to not buy another car by lowering the interest rate," van Zalingen said.
Bernstein said that Fannie Mae has experimented with location efficient mortgages in the past -- about 2,000 location efficient mortgages, sometimes called "smart commute" mortgages -- were issued in the 1990s.
Only one went into default -- and that was a "technical" default that was corrected and the home was saved.
"It ought to be part of the toolkit we could use to improve the economy and have a positive environmental impact," said Bernstein.
