Homeownership is the bedrock of stable neighborhoods. We know that. Homeownership is also a primary way for families to build generational wealth. That is well known, too.
So, if we are to revitalize Detroit neighborhoods and help lower-income families climb the economic ladder, we must facilitate access to affordable homeownership opportunities.
Unfortunately, however, structural barriers and inequities continue to inhibit aspiring homebuyers in Detroit as they seek to realize their dream of homeownership, as two important recent studies show.
More than half of the Black mortgage applicants in Detroit were rejected by banks and other lenders, a research report by the Urban Institute found. Inadequate credit history was the reason most often cited for the denial.
Only about 1 in 5 Detroiters who complete homebuyer education with HUD-certified agencies were able to purchase a home, according to a study by the University of Michigan’s Center for Equitable Family and Community Well-Being, DC Palmer, and Southwest Solutions. The study is called Detroit Dreams Deferred: Thousands Mortgage Ready but Many Miss Out.
The evidence from these studies indicates that what is happening in Detroit “is tantamount to redlining,” said Steve Tomkowiak, Executive Director of the Fair Housing Center of Metropolitan Detroit, and one of the expert panelists at the special event announcing the Detroit Dreams Deferred report.
Homebuyer education (HBE) is regarded as an important opportunity for low-to-moderate-income, aspiring homebuyers to learn the basics of purchasing a home and to earn a certificate for completing the course that is required for down payment assistance and other incentive programs. The data that less than 20% of Detroiters who earned the HBE certificate actually secured a mortgage demonstrates that “the Detroit mortgage market is not working the way it is supposed to,” said Hector Hernandez, Executive Director of Southwest Economic Solutions, who moderated the panel at the report announcement.
The data for this finding derives from federal forms that HUD-certified counseling agencies file about those they serve and the outcomes of the services. However, there are significant gaps in the tracking of home-purchase outcomes by the agencies. Consequently, to supplement this data, the researchers of the Detroit Dreams Deferred report created a survey that the 16 counseling agencies in Detroit were asked to send to their HBE graduates during the time period being analyzed for the report. Ultimately, about 95% of the survey responses came from HBE participants at Southwest Economic Solutions (SWES). Alex Makohn, Manager of the Homeownership Assistance Team at SWES, led the SWES survey initiative. Of the survey respondents, only about 35% ended up buying a home (with about 60% of those buying in Detroit), again illustrating the challenges that aspiring Detroit homebuyers face.
The Detroit homebuyer data is disheartening, but it is not surprising to experienced experts working to promote equitable housing opportunities in the city. In fact, the data “understates” how serious the issue is, said Tim Thorland, Executive Director of Southwest Housing Solutions, who also served as a panelist at the announcement event.
“The question is how do we move past the data and make real progress in our community,” said Thorland.
Thorland cited Southwest Solutions’ Newberry program as a model of what can be accomplished to address the crisis in affordable homeownership opportunities in Detroit. In the Newberry neighborhood in southwest Detroit, Southwest Solutions acquired 60 single-family rental properties and is transitioning them to affordable homeownership. Current renters have priority in taking advantage of this opportunity. In almost all cases, the mortgage payments, including taxes and insurance, are lower than what the new homeowners had been paying in rent before.
In the census tract where the Newberry initiative is located, there were no new mortgages in this tract in the last two decades before our initiative began three years ago. Of the 44 new Newberry homeowners to date, 35 are black and 9 are Latino. The new homeowners in Newberry have an extraordinary opportunity to build wealth as property values increase in the neighborhood.
The current purchase price of a Newberry home is $65,000. Mortgages are provided through a loan fund made possible by a $2.5M grant from the Sam L. and Judith G. Yaker Fund. Newberry homebuyers must complete homebuyer education and then most work with Southwest Solutions’ financial coaches to qualify for the “small mortgage loans.”
Small mortgages are generally defined as those less than $100,000. Traditional lenders are often unwilling to make these loans, unfortunately, because they are not as profitable. However, the availability of these kinds of loans is vital to low-to-moderate-income (LMI) homebuyers wanting to purchase in Detroit neighborhoods where home prices are modest.
Since banks are reluctant to make these small mortgage loans, they should invest in organizations that will do so because it fulfills their mission of uplifting LMI families and communities, Thorland urged at the Detroit Dreams Deferred event.
Among the other findings of the report:
- The Michigan State Housing Development Authority (MSHDA) provides down payment assistance (DPA) up to $10,000 to eligible LMI homebuyers. This program is the largest and most important incentive one for LMI homebuyers in the state. MSDHA made 13,706 DPA loans between 2015 and 2019. Of those, only 414 went to Detroit homebuyers, and the loans by and large went to neighborhoods considered to be more stable and attractive.
- Less than 20% of the home purchases in Detroit happen through mortgages. Alternative property transfer arrangements, like land contracts, remain the norm in most Detroit neighborhoods. These arrangements offer less protection and are less secure than mortgages. In certain high-demand neighborhoods – like the Central Business District, Corktown, and Indian Village– almost all the home purchases were through mortgage sales.