Friday, April 17, 2015

Zero down, no fees: New mortgage program will help homebuyers rehabilitate Detroit homes

Detroit Mayor Mike Duggan announced Thursday a new mortgage program that he hopes will address one of the city’s great ironies: empty, abandoned houses everywhere that nobody can buy because they are so cheap and so broken that banks won't lend on them.

Last year, just 10 percent of Detroit homebuyers got a mortgage; the rest had to pay in cash to make deals happen.

The challenge? Most require significant work to be habitable, but the cost of fixing them up is often more than what they are valued. After all, the median home price in Detroit was just $26,000 in February, according to RealtyTrac, an Irvine, Calif.-based company that sells real estate data.

“We know that the desire to renovate these houses and rebuild our neighborhoods is there,” Duggan said at a news conference. “What we haven’t had is enough lenders willing to take a chance on our city to show what’s possible.”

The new program, dubbed the Detroit Neighborhood Initiative, enlisted Bank of America, Boston-based Neighborhood Assistance Corporation of America and Detroit-based Opportunity Resource Fund to create a loan that can get around federal regulations that prohibit, in most cases, lending more than a home is worth.

"Mortgage rules are formulaic," said Matt Elliot, Michigan market president for Bank of America. They don't consider extenuating market conditions like the ones that exist in Detroit.

"We can’t have a sustainable renaissance without Detroit’s neighborhoods. And we can only be as successful as Detroit is successful.”

The new program will write mortgages up to 110 percent of a home's value – or up to 150 percent if purchased through the Detroit Land Bank Authority home auctions. Additionally, the new loans offer favorable terms and are available to anyone who will live in the house and doesn't already own a property, including:

    0 percent down
    No closing costs
    No fees
    No maximum income
    Credit score is not considered
    Below market fixed rates (currently 3.5 percent for a 30-year loan and 2.875 percent for 15 year)
    Ability to buy down the interest rates to near 0 percent
    Loans of up to $200,000

“This is character-based lending,” said Bruce Marks, the founder and CEO of NACA, likening it to the VA loans that were made to vets after World War II. “It is a fully documented loan, but we look at income and ability to pay, not credit scores. … This is a model for restabilizing neighborhoods.”

NACA offers these types of mortgages in about 40 states and is funded by $10 billion from Bank of America and $3 billion from Citigroup Inc. However, it will only issue 150 percent loan-to-value mortgages in Detroit.

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