Potential homeowners who have been stymied by Detroit's low real-estate values have a new path to home ownership in a mortgage program that offers easier rules for eligibility, lower interest rates and the ability to include money to rehabilitate homes.
On Thursday, Detroit Mayor Mike Dugann unveiled details of the plan, which he said will address some of the biggest problems that stop people from getting loans on Detroit homes.
Among the details:
•Loans will be at below-market fixed rates in 15- or 30-year terms and will be offered only to people buying a home they plan to live in.
•Loans will have no down payment, closing costs or fees.
•Borrowers' credit scores will not be considered, but home buyers must be employed or have a steady income and be current for 12 months on existing bills. Those who aren't current are offered financial counseling to improve their payment histories.
The Neighborhood Assistance Corporation of America said a pool of loans funded by Bank of America will be available to Detroit purchasers who meet eligibility requirements, under better terms than buyers get in the traditional mortgage market.
NACA is a nonprofit group with bank funding that works in communities around the country to provide what founder and CEO Bruce Marks calls "character-based" mortgage lending, rather than mortgages based strictly on credit scores and other financial factors.
Marks said it makes no sense that people with stable employment histories but less-than-stellar credit who can and often do pay $700-$800 a month in rent — and regularly make those payments — can't be qualified for a mortgage that could cost $400-$500 a month.
Duggan said the program is available for any home purchase in the city but will be particularly helpful in financing purchases made in the Detroit Land Bank Authority auctions. Potential home buyers in the auction are often stymied when homes they intend to purchase don't appraise for the sale price.
NACA underwrites mortgages that may include rehabilitation money for up to 110% of a home's assessed value. For homes purchased through city land bank auctions, that loan-to-value ratio will be up to 150%, which Marks called unprecedented in the nation.
"This has never been done in the history of mortgage lending," Marks said at a news conference Thursday.
Marks said the group's mortgages have among the lowest default rates in the country because the group provides financial counseling and emergency assistance to keep buyers current on their mortgages. And under the program, buyers who, for example, bought a house at auction for $5,000 that needed $55,000 in repairs would qualify for a $60,000 mortgage, even if the home would appraise at only $40,000 after the upgrades were complete.
Under that scenario, which Duggan said happens regularly in the city, banks wouldn't write a mortgage. But purchasers of Detroit homes will be able to qualify for mortgages of up to $200,000 through NACA.
Duggan said the NACA program solves what he says is a temporary problem: real-estate values in Detroit that remain artificially low because of the extent of subprime mortgage foreclosures. Property values have rebounded in the suburbs, but not in Detroit, and that has the effect of forcing people who want to buy homes to do so outside Detroit, Duggan said.
"We think today we've solved a very significant problem," Duggan said. "These neighborhoods are coming back quickly, and now for the first time we're going to be able to solve the appraisal problem."
Duggan said that, with the new mortgages being offered, the city's land bank will be able to auction three houses a day starting in May, up from the current two per day.
Matt Elliott, Bank of America's Michigan market president, said its funding of the mortgages marks a commitment to Detroit's recovery.
"We can only be successful if Detroit is successful," he said. "Investments like this make good business sense, too."