The Kresge Foundation in Troy, Michigan, has announced the launch of a public-private partnership aimed at stabilizing and spurring new interest in Detroit's housing market.
Through the Detroit Home Mortgage program, five banks — FirstMerit, Flagstar, Huntington, Liberty, and Talmer Bank and Trust — will partner with Kresge, the Ford Foundation, and the Michigan State Housing Development Authority to offer first mortgages to owner-occupants who buy undervalued properties in the city. In addition, the program will offer second mortgages to finance home renovations at amounts that exceed the appraised value of the home. Current lending rules prohibit banks from financing such renovations due to the rock-bottom values of many houses in Detroit. Kresge will provide a $6 million guarantee — the largest guarantee commitment it has ever made — for the second mortgage pool to protect borrowers in cases in which a homeowner is forced to sell his or her home due to hardship circumstances. Kresge also will provide $475,000 to help underwrite the fund's start-up operations.
In 2014, only four hundred and fifty mortgages — representing 12 percent of all home sales — were issued in Detroit. What's more, an analysis of 2009-13 Home Mortgage Disclosure Act data found that more than 80 percent of home improvement loan applications in Detroit were denied, largely because appraised home values were not enough to cover the borrowed amount. To be administered by the Minneapolis-based Community Reinvestment Fund, the new home mortgage program aims to reverse those trends by helping to stabilize and grow home equity and property values in the city, strengthening local real estate markets, investing in homes for which conventional financing is not available, and generating growth in the city's population and tax base, which in turn will support schools, civic participation, neighborhood improvements, and local businesses.
"The Kresge guarantee allows the banking institutions to lend significantly more money than they would otherwise," said Kresge Foundation 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."