A number of financial, philanthropic and civic institutions including The Kresge Foundation have jointly announced the launch of Detroit Home Mortgage, a new program that aims to spur a resurgence in Detroit’s housing market by helping people renovate a home along with buying it.

FirstMerit Bank, Flagstar Bank, Huntington Bank, Liberty Bank and Talmer Bank and Trust have partnered with Kresge, the Ford Foundation and the Michigan State Housing Development Authority (MSHDA) to launch the program.

The Detroit Home Mortgage program offers first mortgages for owner-occupants to purchase under-valued properties in Detroit. It also offers second mortgages to support renovations. Unlike typical mortgage loans, this program will enable homeowners to finance needed renovations at amounts that exceed the appraised value of their home.

The Kresge Foundation will provide a $6 million guarantee in the second mortgage pool primarily to protect borrowers in the case of hardship circumstances that require a homeowner to sell his or her home. That represents the Foundation’s largest guarantee commitment ever.  

Kresge also made a $475,000 grant to support the start-up operations of the fund.

“The Kresge guarantee allows the banking institutions to lend significantly more money than they would otherwise,” said Kresge President and CEO, Rip Rapson. “Kresge has expanded its use of social investments – loans, guarantees and equity investments – to complement traditional grantmaking. 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.”

The Minneapolis-based Community Reinvestment Fund, Inc. (CRF) will administer the fund and serve as program manager and master servicer for the second mortgages.

“Even though there are plenty of affordable houses across Detroit, many of them need extensive repairs and rehabilitation to become livable. Currently, lending rules prohibit banks from financing these renovations due to the low values of these houses,” said Rapson. “The Detroit Home Mortgage program seeks to reverse this trend by providing residents the borrowing power to both purchase a home and to renovate and invest in that home.”

“This is a game-changer for Detroit,” said Detroit Mayor Mike Duggan “We are confident that Detroit Home Mortgage will increase homeownership in the city of Detroit. This initiative is critical to rebuilding Detroit’s neighborhoods. 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.”

“This program would not have been possible without the support of our generous investors, including the participating banks, the Ford Foundation, The Kresge Foundation and the Michigan State Housing Development Authority,” said Frank Altman, president and CEO of the Community Reinvestment Fund, USA, which will administer the innovative mortgage program.”

“Detroit Home Mortgage represents a remarkable coalition of people and organizations with a vested interest in a healthy housing market in Detroit,” said Sandro DiNello, CEO of Flagstar Bank.

Mortgage loans originated in Detroit in recent years have been well below historical levels. In 2014, only 450 home mortgages were issued, representing only 12 percent of all home sales. An analysis of Home Mortgage Disclosure Act data from 2009-2013 showed that more than 80 percent of applications in Detroit for home improvement loans were denied, largely because appraised home values would not cover the outstanding debt.

The Detroit Home Mortgage program aims to reverse these trends by: 

• Providing home ownership and rehabilitation;
• Helping stabilize and grow home equity and property values;
• Strengthening neighborhood real estate markets by encouraging sales, purchases and investments in owner-occupied properties;
• Providing investment in homes for which conventional financing is not available;
• Triggering population and tax base growth that strengthens schools, civic participation, neighborhood improvements as well as local retailers and businesses

The program will offer fixed rate loans with no bank fees. Borrowers who may experience extreme hardship life events according to Fannie Mae standards before paying off their second mortgage loan standards will be protected through the Kresge guarantee.

“We know that a full suite of capital tools – loans, equity investments, deposits guarantees and grants are necessary to make meaningful headway against complex social problems,” said Kimberlee Cornett, Kresge’s managing director, Social Investment Practice. “Our growing investment capacity allows us to more frequently partner and leverage capital from private and public investors like those involved with this deal today. Through our social investing, we have a goal of attracting $1 billion from other investors and with efforts like the Detroit Mortgage Fund, I’m confident that we will meet that goal.” 

Kresge’s Social Investment Practice uses financial tools including debt, equity, guarantees and deposits to make investments that further the foundation’s mission and programmatic priorities.

Kresge’s Detroit Program uses a comprehensive strategy to promote long-term economic opportunity in the foundation’s hometown. That strategy encompasses efforts to revitalize neighborhoods and the Woodward Corridor along with support for arts and culture, regional transit, early childhood development and the enhancement of civic capacity

To learn more about the program, visit: www.detroithomemortgage.org