Mortgage program Targets Buyers Along Transit Lines.

For some, the American dream may now be as close as the nearest bus stop.

A new program that loosens the home mortgage lending requirements for those who are willing to locate close to public transportation is about to roll out in Los Angeles.

The program, developed by two environmental groups along with Countrywide Home Loans and Fannie Mae, offers homebuyers mortgages of up to $50,000 more than they would qualify for under standard lending guidelines. The rationale for the program is that, by using public transportation instead of their cars for much of their daily travel, people can save enough money to afford higher monthly mortgage payments.

Although a number of L.A. neighborhoods qualify for the loan program, the agencies pin pointed Long Beach, North Hollywood and Van Nuys as areas that offer the greatest potential savings for users of public transit.

"We conducted research that says people who live near public transit own fewer cars and save more money," said Gloria Ohland, Southern California project manager for the Surface Transportation Policy Project, a nonprofit environmental group that initiated the program with the Natural Resources Defense Council. "We're trying to provide a pocketbook incentive for people to change their behavior."

Effort to discourage sprawl

Unable to afford houses in urban areas, first-time homebuyers traditionally have been forced to look farther and farther from the city center, increasing the distance they commute to work and contributing to traffic congestion and air pollution.

Questions remain whether the loan program can really help reverse that trend. In Seattle, where an identical program rolled out last November, only about four loans have closed, according to Dianne Wasson, vice president and manager of affinity lending. at HomeStreet Bank, which is participating.

The idea for the so-called "location-efficient mortgage" was hatched about 10 years ago by David B. Goldstein, energy program director for the Natural Resources Defense Council in San Francisco, when he began shopping for a home.

Goldstein's income didn't allow him to qualify for most homes in the Bay Area, but he knew he had enough disposable income to cover the payments. Also, he believed that the difference in what he earned and the mortgage he could afford boiled down to savings he and his family reaped by relying heavily on public transportation. At the same time, Goldstein realized that friends in similar situations were moving farther and farther out of town, adding an hour or more to their commute, in order to find an affordable home.

"It was obvious at the time that they were trading less housing costs for more transportation costs, even though we couldn't put a number on it," Goldstien said. "We recognized that urban sprawl was happening in part not because people wanted to live in the suburbs, but because banks were forcing them to do that if they wanted to own their own home."

Eventually, the NRDC and the Surface Transportation Policy project secured a grant to study transportation spending patterns and, in 1998, the groups took the hard numbers Countrywide and Fannie Mae, which has set aside $100 million to pilot the program for the next year.

The program works this way: Each neighborhood is assigned a location-efficient value, which is a calculation of how much money a family is likely to save on transportation based on family size and income, the availability of housing in the area, and the proximity to public transit and other amenities like shops and restaurants. In general, a location must be within a quarter from a bus stop and one-half mile from a rail stop to be considered for the program. The maximum allowed mortgage is then calculated taking these savings into account.

For example, a couple with an annual income of $50,000 buying house in an area of Van Nuys near public transit would, based on income alone, qualify for a mortgage of about $139,000 a $7,000 down payment. That same couple, under a location-efficient mortgage, would qualify for a loan of nearly $173,000 with a little more than $5,000 down.

"Every neighborhood will, have some mortgage efficiency value. But the areas eligible are ones where the savings are predicted to be more than $100 a

month," said Dennis Zane, whose firm, Urban Dimension, served as a consultant to the Surface Transportation Policy Project.

Roadblocks to success

The program has already rolled out in San Francisco and Chicago, in addition to Seattle, but progress has been spotty, in part because agencies have no marketing budget to tout the loans.

In Los Angeles, where Countrywide began offering the loans in April, there are no hard numbers yet, but Officials say only a few have been written.

"It's rolling out slowly," said Dottie Sheppick, Countrywide's senior vice president for developing markets. "I think as it gets better know and people understand who will fit into the program, we'll able to qualify more people."

But lack of awareness and the limited acceptance of public transportation are not the only problems in Los Angeles. An equally daunting issue here is the fact that Countrywide is not a "jumbo" lender, meaning all its loans are backed by Fannie Mae -- and thus they have a ceiling of $252,000. Ironically, many of the neighborhoods that are labeled most location efficient, like Sherman Oaks and Santa Monica, have average home prices well In excess of that cap.

The agencies are working to add other banks, such as Bank of America, which write "jumbo" loans in excess of $252,000, but so far only Countrywide and HomeStreet Bank in Seattle have signed on to offer the mortgages.