Barrels of ink, countless hours and hundreds of meetings have been used to try to figure out how to help Detroit’s neighborhoods grow through home ownership, reinvestment and renovation. It seemed like no one could figure out how to get all of the parties to the table.
Well, it turns out someone finally has. Thanks to public-private partnerships, foundation investments, government interest and several financial service companies coming to the table, Detroit now has a real and important way for people who want to live and invest in Detroit’s housing stock to get themselves a home here.
Introduced Thursday, the program known as “Detroit Home Mortgage” is being hailed as the first-of-its kind collaboration dedicated to Detroit, to its neighborhoods and to its future. “Let the House Shopping Begin!” trumpets the program’s website.
Baby steps. That’s what Detroit is all about. Thanks to public-private relationships, many more streets have quality lighting. Because of foundations, we have amazing entrepreneur-education programs. Because of business investment, we have improved safety, health and related services.
Now, there will be housing.
This could be the answer to a myriad of Detroit’s issues. The problem, as Mayor Duggan noted during a Thursday press conference for Detroit Home Mortgage, was “frustrating” because Detroit had interested potential residents. There certainly was houses. But there was limited ways of bringing them together in a real way. The process was challenging, all presser participants noted. But the result could be life changing for many.
“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,” Duggan told the crowd gathered on the city’s west side.
Through Detroit Home Mortgage, banks will now be able to lend qualified homebuyers the full amount needed to purchase a renovated home, or to buy and rehabilitate homes anywhere in the city of Detroit.
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. 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.
Houses across Detroit remain inexpensive to purchase relative to homes just outside the city limits, but the lack of financing forced many families either to pay cash or to rent instead of building equity and investing in their futures. Some homebuyers use expensive credit cards to pay for renovations, or do the renovations piecemeal over several years.
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/or the cost of renovations. The program aims to increase homeownership, property values and reinvestment in any Detroit neighborhood where the appraisal gap exists.
The collaboration of 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 was spurred into action by two days of visionary discussions at the Clinton Global Initiative (CGI) America meeting last summer, Duggan explained.
All participating banks will offer Detroit Home Mortgages at the same low interest rates with no bank fees. Like all loans, Detroit Home Mortgages must be repaid. However, The 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.
The Ford Foundation made an $800,000 grant and Kresge a $475,000 grant to support the start-up operations of the fund. The Michigan State Housing and Development Authority will commit up to $6 million to reduce the cost of borrowing for homeowners and seed a loan loss reserve.
Also, 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. 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.
“We will provide education to qualifying borrowers who would like to buy and renovate a home in Detroit,” said Hector Hernandez, executive director of Southwest Economic Solutions, a homebuyer counseling agency. “Detroit Home Mortgage is for borrowers who want a long-term investment in Detroit’s future and their future.”