Detroit Home Mortgage (DHM) is a three-year program to provide $40 million in second mortgages to fund necessary repair and rehab activities for 1,000 homebuyers in Detroit. To operate at this scale, nearly twenty local, regional and national partners are involved.
Community Reinvestment Fund, USA (CRF) commits to create and manage the $40 million Detroit Home Mortgage Fund as a wholly-owned subsidiary, to purchase second mortgages from participating banks. In addition to managing the Fund, CRF is also acting as Program Administrator and Servicer of the mortgage loans, and will hire a dedicated program manager to oversee the day-to-day operations of the DHM program and partner relationships. This program will directly unlock $75 million in first mortgages and will be paired with essential borrower education programing.
During the initial launch phase of this Commitment, six Detroit banks have agreed to jointly offer a standard mortgage product, Detroit Home Mortgage that will be offered exclusively within the city of Detroit. These banks include: Flagstar Bank, Talmer Bank and Trust, Huntington National Bank, FirstMerit Bank, Liberty Bank and Trust Co, and FifthThird Bank all of which will originate conventional first mortgages up to 96.5% loan-to-value consistent with FHA guidelines, and originate second mortgages for the difference between the appraised value and the costs of rehabilitating homes to livable standards. Additionally, many of these banks have committed to directly investing an initial $28.5 million total into the Detroit Home Mortgage Fund. This initial investment will allow for the program to launch while additional investment capital is raised from these and other financial institutions. In addition to the market rate investments committed to the Fund, the Michigan State Housing Development Authority has committed up to $6 million in affordability enhancements, with the first $1.5 million available in calendar year 2016. The Kresge Foundation has also committed a $6 million Program Related Investment to support guarantees and credit support for the Fund. The Kresge Foundation and the Ford Foundation have also provided grants to support program operations. Additionally, FirstMerit Bank, Flagstar Bank, Huntington National Bank and Talmer Bank and Trust have each provided grants to support the necessary program marketing efforts.
In order to ensure that homebuyers understand the potential complexities of a higher loan-to-value mortgage as well as the process of renovating a home, a borrower education component has been created for the program that will be provided in addition to standard HUD approved homebuyer education and counseling programs. The educational programming will be tailored to the needs of the borrower with each homebuyer receiving counseling for the higher loan-to-value aspect of DHM. Currently, six technical assistance providers have committed to providing borrower education services for DHM, including: Southwest Solutions Housing Corporation, U-SNAP-BAC Non-Profit Housing Corporation, Central Detroit Christian Community Development Corporation, Wayne Metropolitan Community Action Agency, the Family Tree Agency, and National Faith Homebuyers.
At the time of launch, $28.5 million in investments have been committed to the Fund, with up to an additional $12 million in credit enhancements, guarantees and affordable measures enough capital to launch the program. Over the coming months, the Commitment partners will work to increase the investment in the fund towards the full $40 million target. When fully funded, DHM is expected to serve 1,000 homeowners over the next three years.
Pre-launch (August 2015 January 2016) The goal during this time period is to finalize program participants (including investor structure), program parameters and the marketing and public relations strategies in order to announce DHM and subsequently have a successful program launch.
Key activities during this period include market assessment; product development;, product modeling including volume and loss assumptions; determining counseling needs; determining requirements and delivery mechanism, underwriting criteria and interface with conforming mortgages; completing full description of Program management; engaging legal counsel; formulating capital strategies; and developing the DHM brand and marketing strategy.
Program Launch (February May 2016) The goal during the launch phase is to successfully launch DHM, engaging previously identified market segments resulting in making this much needed financing available to families in the City of Detroit.
Key activities during this period include completing final business and financial modeling, transaction structure and documentation for DHM loan origination, loan servicing for second mortgages, and financial and homebuyer counseling; implement the marketing strategy established in pre-launch phase, using social media, billboards, newspaper ads, and earned and paid media; establish program evaluation timing and processes; complete a public launch; participating banks originate loans and sell second mortgages to the fund. Commitment partners anticipate the marketing and public relations efforts will be heavily focused on this period through the first year of program operation to build recognition around DHM.
First year of program operation (May 2016 February 2017) The goal of this phase is to build upon the successful Program launch, funding loans, receiving commitments for the remaining $14 million in investment capital, raising additional capital to fund technical assistance efforts and ongoing marketing efforts, communicating with funders, investors, and partners; and evaluating the Program to see if changes are needed.
Key activities include the review of each lenders progress toward total program volume commitments; analyze applicant demographics (approved and denied); conduct lender and counselor interviews; review program and non-program loans size, location and terms; compare market receptivity against market plan; report to funders and investors as required; and facilitate audience and lender discussion on areas for improvement. During the first full 12 months of lending, Commitment partners anticipate funding an estimated 300 to 350 loans (based on projections from participating program lenders).
Ongoing Program Operations (March 2017 February 2019) the goal of this phase is to build upon the momentum of the launch and first year of funding loans. Commitment partners estimate the remaining 650 - 700 loans will be funded over the course of the second and third year. Additionally, if there is less demand for the product in the later years resulting from one of the key goals of the program namely to help raise market values for homes by establishing a solid core of comparable properties for appraisals, thus reducing the need for this gap financing product, this would demonstrate a significant early success of the DHM program.
Key activities include the review of each lenders progress toward total program volume commitments; analyze applicant demographics (approved and denied); conduct lender and counselor interviews; review program and non-program loans size, location and terms; compare market receptivity against market plan; report to funders and investors as required; and facilitate audience and lender discussion on areas for improvement.