New Program Helps Detroit Homebuyers Secure Two Mortgages

Detroit Mayor Mike Duggan has introduced a new program that would change the depressed housing market of the city.

As reported by MarketWatch, the new program called the Detroit Home Mortgage (DHM) will help those who qualify for a mortgage but could not get a property because of home value appraisal issues. Under this program, buyers can get two mortgages, one for the purchase value and one for the renovations.

When the city filed for bankruptcy in July 2013, the housing sector was one of the hardest hit markets and many homes were left in their sorry state. Over 93,000 homes were unoccupied in August 2015, according to data from Trulia.com. At 12 percent, Detroit has the highest vacancy rate in the country. Worse, most are not willing to invest in the property market because even after rehabilitation, the value of a home is appraised at less than the purchased and rehabbed amount.

"This disparity creates a vicious cycle: rehabilitating is not profitable, so there is little incentive to invest in a home," said Laurie Goodman, director of the Housing Finance Policy Center.

DHM might be the answer to the city's hope to improve the neighborhoods and increase property tax revenues.

According to CNBC, lenders participating in the DHM program would offer borrowers a loan with a combined loan-to-value ratio of more than 100 percent, a higher ratio than normal which is usually considered as high risk.

"By allowing for mortgages with loan-to-value ratios over 100 percent, it could break the vicious appraisal spiral, which has systematically undervalued rehabbed homes," Goodman said.

CNBC noted that three banks - Flagstar, Talmer and Huntington - have already allocated about $40 million for the second mortgages. There are also funds coming from the Ford Foundation, Michigan State Housing Development Authority and the Kresge Foundation.

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