Detroit Mayor Duggan introduces new mortgage program

By: Mike Koury | C&G Newspapers | Published March 2, 2016

A new program introduced by Detroit Mayor Mike Duggan looks to help qualified homebuyers receive loans to purchase renovated homes in the city.

Duggan introduced the Detroit Home Mortgage program at a press conference on Thursday, Feb. 18, and detailed how banks will give a second mortgage needed to purchase renovated homes or make repairs to homes in Detroit.

The problem stemmed from how federal lending guidelines didn’t allow banks to loan potential homebuyers enough money to pay for repairs, as the amount given was only as high as the appraised value of the house.

“The reason for it has nothing to do with credit scores and income,” Duggan said at the press conference. “It is 100 percent a problem of appraisals that came out of the last housing crisis in 2008.”

One such problem that a person could have faced was if they were buying a home for $60,000 that only was appraised at $50,000, they might not have been able to get a loan from a bank. Duggan said this problem drove people away from the city.

“You can’t buy the $60,000 house in Detroit because you can’t get the mortgage, but you can buy a $200,000 house in Ferndale,” he said. “Same income. Same credit score. We were driving people out of the city.”

With the Detroit Home Mortgage program, homebuyers who qualify would receive a mortgage for the appraised value of their house, though less than their 3.5 percent down payment. The program would cover a second mortgage up to $75,000, which would fill the gap between the appraisal and the sale price, as well as the cost of renovations.

The program was spearheaded by Community Reinvestment Fund, USA, which helps bring more community development funding to areas that need it.

“We think that makes this a very responsible product for people who want to get back into homeownership get out of the rental market or move into the city of Detroit and take advantage of great housing opportunities that are in the city,” President and CEO of Community Reinvestment Fund Frank Altman said. “The purpose of this program is to fix this particular problem, which is holding back property transactions and forcing many people who want to be homeowners to be renters.”

The money contributed to the fund in which the loan money will be pulled from was given by 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. 

Altman said $40 million was contributed to the fund, and they’ll be making mortgages with the money for the next three years. His hope is that the DHM will generate enough activity that will help sale prices of renovated homes go up, because more people will buy houses after they’ve been improved, and the private mortgage market will begin to function without the need of the program.

Homebuyers who qualify have to take classes about the potential risks involved in taking out multiple loans to help determine if purchasing a home is right for them.

Whether it’s someone who’s owned a home before or if it’s a first-time homebuyer, Altman said it’s about educating people about the responsibilities of owning a home and paying bills, such as property taxes.

“We want to make sure there is explicit understanding of the nature of this product,” he said.

Altman said the classes also will cover details of the loans themselves, going over how this second mortgage is a loan and has to be paid, though there are certain circumstances in which it might be forgiven.

“If you pay one loan and not the other, you could still be in default on both,” he said. “It’s not a grant. It’s a loan.”

For more information about Detroit Home Mortgage, visit www.detroithomemortgage.org or one of the participating banks.