Will unprecedented mortgage lending finally save Detroit?

Bank of America, NACA partner to offer zero-down, below market rate mortgages

The plight of the city of Detroit has been well chronicled in the last few years. Once the hub of American ingenuity and enterprise, the city took serious body blows with the downfall of the American auto industry and the city itself filed for bankruptcy on July 18, 2013.

In the aftermath of the housing crash, Detroit has been the subject of numerous efforts to save the city, from the likes of the Department of Housing and Urban Development, the Department of the Treasury, Fannie Mae, and Quicken Loans, just to name a few.

But after this week, no one can ever say again that the city of Detroit is not prepared to go to extraordinary lengths to pull itself out of the recession.

On Thursday, Detroit Mayor Mike Duggan announced a new mortgage program designed to stabilize its neighborhoods, fight the city’s blight and help more of its citizens become homeowners.

The newly created program, called the “Detroit Neighborhood Initiative,” is based on a partnership between the city of Detroit, the Neighborhood Assistance Corporation of America, the Opportunity Resource Fund and Bank of America (BAC).

After completing a NACA pre-purchase program, homebuyers can qualify for what the group calls a “remarkable” mortgage, featuring zero down payment, zero closing costs, no fees, and “below-market” fixed interest rates – 3.5% on a 30-year note and 2.875% on a 15-year note.

But that’s not all. Not by a long stretch.

The program will allow borrowers to take out loans with a loan-to-value ratio of 110%, with the excess to be used as funding for renovations.

For homes bought through the Detroit Land Bank, which recently began purchasing foreclosed homes back from Fannie Mae, borrowers will be able to take out loans with a LTV of 150%; a figure that NACA CEO and founder Bruce Marks says has never been done before.

“This is a game changer, which has never been done in the history of mortgage lending,” Marks said. “The mayor of Detroit, Bank of America, and NACA are not only redefining neighborhood stabilization for Detroit, but are providing a national model of a true partnership that will significantly stabilize both neighborhoods and homeowners. It shows a path forward for how hard hit communities can truly be revitalized.”

Additionally, the buyer’s credit score is “never considered” in the mortgage process. Instead, the buyer’s “individual payment history” will be considered instead. A report from the Detroit Free Press delves into what that actually means. According to the Free Press report, borrowers must be employed or have a steady income, and be 12-months current on their existing bills.

According to the group, the loans will be underwritten by NACA and funded by Bank of America.

“We know the desire to renovate these houses and rebuild our neighborhoods is there” Mayor Duggan said. “What we haven’t had is enough lenders willing to take a chance on our city to show what’s possible. That changes now in a big way.”

At a press conference Thursday, Marks said that NACA is not concerned about the program’s high LTV ratios or other unique features.

From the Free Press report:

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.

Bank of America said that it is happy to play a role in the revival of Detroit.

“Our ties with the people and businesses of this community are deep and longstanding,” said Matt Elliott, Michigan market president for Bank of America. “The addition of this homeowner program gives us another tool to help play our part in Detroit’s resurgence.”

Christi Coady Narayanan, CEO of the Opportunity Resource Fund, echoed that sentiment. “We are pleased to work with the City, NACA and Bank of America to make homeownership a reality for even more Detroit residents,” Narayan said. “We have always believed that investing in Detroit – for the long term – is good for the community, its residents and businesses.”

Duggan said he is “thrilled” that the program came together.

“Detroit has unique challenges in its housing market” Duggan said. “I have been upfront about the need to try something new and different to help kick-start things, and rebuild property values in Detroit. Allowing those that want to invest and live in our city to access the money they need to make their dream home a reality is a crucial step. I am thrilled about the faith that Bank of America, NACA, and the Opportunity Resource Fund have shown in our city and its people.”

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