Washington, D.C., is one of 13 cities in the United States where national mortgage lender Fannie Mae operates its Smart Commute mortgage program. Among those who have played a role there are: [from left] Robert Broeksmit, president of BF Saul Mortgage; Peter F. Norstrand, regional president and chief executive officer of SunTrust Bank’s Washington branch; Rep. Eleanor Holmes Norton, D-D.C.; Rep. Jim Moran, D-Va.; and Fannie Mae Vice Chairman and Chief Operating Officer Daniel Mudd.

National mortgage lender Fannie Mae is urging consumers to be more environmentally friendly through the organization’s 2-year-old pilot program known as the Smart Commute mortgage, which offers better rates and flexible qualifying guidelines for homeownership in neighborhoods near public transit.

The Smart Commute mortgage is offered through Fannie Mae’s Housing and Environment Initiative, which promotes the design, construction and purchase of more efficient homes.

Fannie Mae officials said that by offering the program, the lender hopes homebuyers will recognize the excessive amount of money spent on commuting and, as a result, purchase a home located in a community served by public transportation.

“The [Smart Commute mortgage] concept was started by looking at what people spend their money on. The two biggest things were utility costs and transportation … transportation costs were actually more than utility costs,” said Michelle Desiderio, senior product developer at Fannie Mae. “[Fannie Mae] thought that energy costs would be the biggest expense, but it was the second-largest expense, and sometimes surpassing the housing costs were transportation costs. By reducing transportation costs and taking mass transit systems, [consumers] would be able to reduce their transportation costs and put [money] toward a down payment.”

The pilot program started in 2001 and currently operates in 13 cities around the nation including Baltimore, Pittsburgh, Minneapolis, Salt Lake City, Philadelphia and Washington, D.C. Most recently, Fannie Mae launched the program in Denver.

‘Mixed Successes’

“The concept was to have people take a holistic approach to looking at their housing and what they can afford. A lot of transportation decisions affect where you live,” said Desiderio. “Every pilot city has a partnership office … and every city had a transit agency that was a willing partner and wanted to be part of this [program.] Most of the cities have provided a free or discounted transit pass to the borrowers. This is a great way to promote mass transit and make the choice to live near transit and use that to go to work everyday.”

By purchasing a home closer to a mass transit line, consumers get Smart Commute mortgage incentives while, at the same time, saving money on commuting expenses and helping city environment departments and highway systems by eliminating automobiles on the interstates and city streets.

“This pilot [program] encourages people to ride mass transit and is aimed at work [commuters]. Fannie Mae came up with a flat savings amount that someone would save by using a transit system and we add that to loan qualification income amount,” said Desiderio. “The low- to moderate-income families spend more in transit than moderate- to high-income families, and we wanted to do something in particular for those families.”

According to Fannie Mae, more consumers are interested in purchasing environmentally friendly homes, so the lender created mortgage products that can help the earth-conscious consumer increase homeownership opportunities while promoting energy- and resource-efficient design and construction, smart growth and sustainable communities.

In order to be eligible for a Smart Commute mortgage, a borrower cannot own or lease more than two motor vehicles (including cars and trucks, but excluding recreational vehicles and motorcycles). Also, the Smart Commute mortgage may be used with standard or Community Lending products – but when Community Lending products are used, Standard Community Lending income limits apply. Eligible properties must be located in transit-accessible communities as determined by Fannie Mae’s methodology.

The Smart Commute mortgage has more flexibility than standard mortgage financing and, unlike a traditional 30-year fixed-rate mortgage, offers potential homebuyers more flexible qualifying guidelines, including a down payment of 3 percent from the borrower’s own funds, and use of the Smart Commute Savings as additional borrower income in qualifying for the mortgage.

Desiderio said the Smart Commute program will be introduced in Atlanta, Miami, Sacramento and Portland, Maine, within the next six months, while other cities are also under consideration.

Desiderio said the reaction to the program has been mixed, however, and making the public aware of the available options is the biggest challenge.

“We’ve had mixed successes … some cities have been more successful than others,” said Desiderio. “In some cities, it is a matter of time because of [lack of] public knowledge and awareness that the program is out there. We need to market this and get the word out.”

Chicago, Seattle, Los Angeles and San Francisco launched a similar product – the Location Efficient mortgage – in 1999 as a location-type mortgage product that was transit-oriented. Desiderio said Fannie Mae won’t push another product in those cities, and instead will expand on the Location Efficient mortgage product currently established.

Desiderio said Fannie Mae’s Location Efficient mortgage has been a success in Chicago, but in other cities the national lender is still awaiting more feedback.

“Seattle has had some success and we are gearing up to do more marketing, but we are having much less success in California. There is no question that one of the biggest problems in California is that our loan limit is $322,700, so an enormous number of people are not in our market,” said Desiderio

Fannie Mae is looking at metropolitan cities around the nation in which to introduce the Smart Commute mortgage product and has found some places can be too metropolitan. Here in Boston, Fannie Mae is working with local field offices to make the “Take the T to Work” program more widely known.

“Boston’s program is lower-income-oriented and [Boston Fannie Mae representatives] are working with the [Massachusetts] Housing Finance Agency. The Boston Fannie Mae program office is working to increase the loan volume and broaden scope of product,” said Desiderio. “Since [Boston’s] pilot is in place, we want to keep it intact and not diminish any of the successes we’ve had. New York City has [created] a few suggestions, and we’ve had discussions, but … it’s an enormous city. The scope issue is huge and we have the same problem in loan limits. And, having a car in New York City is impractical to begin with. Our goal is changing behavior and asking people to not drive to work.”

Like any pilot, Desiderio said Fannie Mae hopes to see the successes in each city and learn from both the success and failure rates of each place.

“Based on what we do learn, we can try to develop something new,” said Desiderio. “You’ll see us working on these types of initiatives in the future.”