The transportation-credit mortgage: a post-mortem

“Location-efficient mortgages” and “smart commute mortgages” were sponsored by Fannie Mae and made available by lenders in a large number of US cities beginning in 1999. Participants were given a credit to qualifying income that allowed them to borrow more for homes in neighborhoods with good transit access and high population density. We use the term “transportation-credit mortgage” (TCM) to refer to both programs. The TCM was intended to reduce auto use, decrease sprawl, and increase low- and moderate-income homeownership. But there was little demand. Only about 300 loans were made, and both programs had been discontinued by 2008. Some advocate the TCM's revival. Would this be a good idea? We draw upon interviews with lenders, Fannie Mae officials, and transit agencies; lending data from Fannie Mae; and relevant academic research and theory. The TCM likely generated little market interest because of implementation problems and competitive terms from other loan products. But even if the TCM could be revived, with its implementation problems resolved, it would still be unlikely to meet the intended social goals in most markets. The TCM could even make low- and moderate-income households worse off. More radical changes, and more research, are needed.