Detroit Mayor Mike Duggan, along with the Gov. Rick Snyder, officials from local banks, foundations, and nonprofits, today announced Detroit Home Mortgage, a new program that helps solve the city’s appraisal gap problem.
The program will allow banks to lend qualified homebuyers the full amount needed to purchase a renovated home, or to buy and rehabilitate homes in the city of Detroit.
“This initiative is critical to rebuilding Detroit’s neighborhoods,” Duggan says. “With an opportunity to get a home mortgage, qualifying homeowners and homebuyers have a real opportunity to buy and renovate a house in the city and make it a home.”
He says previously, federal lending guidelines did not clearly allow banks to loan borrowers enough money to cover necessary repairs because the loan amount was limited to the low, appraised value of a house.
Duggan says many potential homebuyers have good credit scores and stable incomes, but could not get a large enough mortgage because the appraiser could not find a similar home nearby with a comparable sales price. He says houses across Detroit remain inexpensive to purchase relative to homes across metro Detroit, but the lack of financing forced many families to either pay cash or rent.
Duggan says with Detroit Home Mortgage, qualifying borrowers receive a first mortgage for the appraised value of their house (less their 3.5 percent down payment), and a second mortgage up to $75,000 to fill the gap between the appraised value and the sale price and the cost of renovations.
“The Detroit Home Mortgage program is another example of what happens when the private and public sectors come together to help Michiganders,” Snyder says.
Detroit Home Mortgage represents a collaboration between Huntington Bank, Flagstar Bank, Talmer Bank and Trust, FirstMerit Bank, Liberty Bank, the Ford Foundation, The Kresge Foundation, and the Michigan State Housing Development Authority. The collaboration was spurred into action at the Clinton Global Initiative America meeting last summer.
“Once the Mayor challenged the Clinton Global Initiative to find a solution to the appraisal and financing gap, we got to work the best way we know: by bringing diverse partners to the table,” says Donna Shalala, president of the Clinton Foundation.
The Community Reinvestment Fund USA will administer the mortgage program.
“By partnering with the city, local banks are joining together to offer loans that resolve the challenge of making homes livable by funding both purchase and necessary repairs, without the problem of financing exceeding the home’s worth,” says Steve Steinour, chairman, president, and CEO of Huntington Bank. “Our regulators, including the Office of the Comptroller of the Currency, are also playing an important role ensuring that this type of credit is available to Detroit homebuyers.”
“Talmer Bank recognizes that neighborhoods come in many shapes and forms and that Detroiters deserve a fair shot at buying and reinvesting in a home,” says Gary Torgow, chairman of Talmer Bancorp. “As we worked on this concept, we recognized the urgency to pool resources to come up with a new approach.”
“Detroit Home Mortgage represents a remarkable coalition of people and organizations with a vested interest in a healthy housing market in Detroit,” says Sandro DiNello, CEO of Flagstar Bank.
Detroit Home Mortgage borrowers must complete classes in homebuyer education and the financial risks involved in borrowing more than the appraised value of a home.
“We will provide education to qualifying borrowers who would like to buy and renovate a home in Detroit,” says Hector Hernandez, executive director of Southwest Economic Solutions, a homebuyer counseling agency.
Southwest Economic Solutions is one of several counseling agencies that will offer Detroit Home Mortgage education classes, including U-SNAP-BAC, National Faith Homebuyers, Central Detroit Christian, and other HUD- or MSHDA-approved agencies.
“The local real estate community knows how challenging it is to help buyers get the financing they need for a house in Detroit,” says Kamal Cheeks, president of the Detroit Association of Realtors. “Detroit Home Mortgage will give those qualified buyers a chance they haven’t had before — and that’s good for all of us.”
All participating banks will offer Detroit Home Mortgages at the same interest rates with no bank fees. Detroit Home Mortgages must be repaid. However, Troy-based Kresge Foundation will provide a $6 million guarantee on the second mortgage pool to protect borrowers in extreme cases of hardship that require a homeowner to sell his or her home.
“This new mortgage program is an excellent example of how philanthropy can partner with public and private sector investors to unlock capital and move more resources to underserved communities,” says Rip Rapson, president and CEO of Kresge.
The Ford Foundation made a $400,000 grant and Kresge a $475,000 grant to support the start-up operations of the fund. The Michigan State Housing Development Authority has committed $1.5 million for the first year and will look at additional funding of up to a total of $6 million in the future.
“Detroit Home Mortgage shows what is possible when the Federal government partners closely with communities to cut through barriers and help people on the ground solve problems,” says Shaun Donovan, director of the White House Office of Management and Budget. “Today’s announcement marks an important step in the ongoing effort of local leaders, the private sector, and the people of Detroit to revitalize their city, an effort the Obama Administration has strongly supported.”
For more information, visit DetroitHomeMortgage.com.