Matt Helms

Detroit Free Press

A new program to help Detroit home buyers finance purchases will guarantee 1,000 mortgages in a city where banks have been skittish about lending because of deeply depressed property values, Mayor Mike Duggan, bankers and charitable foundation leaders said Thursday.

Called the Detroit Home Mortgage, the program will offer traditional first and second mortgages from five banks that lend to home buyers in metro Detroit. The mortgage program is designed to address one of the biggest hurdles to home ownership in the city: home sale prices that are higher than appraised values, a gap that makes it difficult for people to get mortgages, no matter their income or credit score, Duggan said at a news conference also attended by Gov. Rick Snyder

Duggan said 3,000 homes were sold in Detroit in 2015, and only about 500 involved mortgages.

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“It is absolutely depressing the property values and the comeback of our city,” Duggan said at the news conference in the living room of a home in northwest Detroit that’s in the process of being sold. He was joined by leaders from Talmer, Liberty, First Merit, Huntington and Flagstar banks, the Kresge Foundation and others.

Duggan said the loans are traditional and are designed for people with steady income and credit FICO scores of at least 640. These are people who qualify for mortgages that could easily purchase suburban homes but stumble in Detroit, where property values have yet to recover from the recession and subprime mortgage foreclosure crisis, still 50% below where they were in 2007.

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The appraisal gap can be explained in numbers. A home buyer offers, for example, $75,000 for a home that a decade ago might have gone for $150,000. But because widespread foreclosures have dragged down values, appraisers say the home is only worth $50,000, so banks decline to write a mortgage for it.

The new mortgages are backed by guarantees from the Ford and Kresge foundations and other groups, creating a a pool of about $75 million in first mortgages and $40 million for second mortgages.

Through the program, qualified buyers will be able to go to any of the five banks and get a Detroit Home Mortgage, which includes the option of a second mortgage of up to $75,000 to cover the gap between the sales price and appraised value of a home, plus money for any necessary renovations. Buyers also must have a down payment of 3.5%.

The $40 million from foundations and other groups provides protection to lenders should homeowners have to walk away from their loans because of significant life events such as a job loss or major illness. But organizers said it also protects homeowners, who will be made whole should they have to move for that life event.

The goal, Duggan said, is to get mortgages to people who otherwise would be shut out of the city housing market, but also to help raise appraisal prices of homes across the city that will sell for higher than artificially low current appraisals.

“This is for people who could have readily gotten a mortgage in Southfield or Warren or Farmington or Redford who are being forced to move out of the city, but couldn’t get a mortgage in Detroit because of the appraisal problem," Duggan said.

The mortgage program — details are at www.detroithomemortgage.org — took what participants said was a deeply complicated path to become a first-of-its-kind project. It began with two days of meetings in Denver last summer at the Clinton Global Initiative, a program put on by the Clinton Foundation, the charitable organization founded by former President Bill Clinton. His former health and human services secretary, Donna Shalala, now president of the foundation, also attended Thursday's news conference.

In Denver, representatives from banks, government and foundations met in intense, closed-door meetings about how to address the appraisal problem in Detroit. Ultimately, it look months of investigation and included asking the federal Comptroller of the Currency for relief from tougher mortgage lending rules enacted after the housing crash, said Stephen Steinour, president, chairman and CEO of Huntington Bank.

“This is a solution to an end,” Steinour said. “Values are depressed. Once you get a mortgage market in, the values will go back to whatever the norms are. I think they will reflate … The city needs to have a thriving housing market in order for it to sustain a great long-term future.”

Sandro DiNello, a Detroit native who is CEO of Flagstar Bank, said the bank made $30 billion in mortgages across the country in 2015.

“It’s ridiculous that we're not making mortgages in Detroit,” he said.

Frank Altman, president and CEO of the Minneapolis-based Community Reinvestment Fund, USA, which will administer the program, called the mortgage effort a “solution that we think is going to change the game” in Detroit and other U.S. cities dealing with depressed property values.

Rip Rapson, president of the Kresge Foundation, which pledged $6 million to the effort, said the project is an “extraordinary symbol of a new way of working in Detroit, where every sector of the community and every level of government is stretching beyond the fence line” to overcome a significant problem.

Snyder said the new mortgage program marks an a important point in Detroit’s recovery.

“This is about building value,” he said. “That’s the huge message today.”

Contact Matt Helms: mhelms@freepress.com