Michigan sees greatest decline in black homeownership in nation
The African-American community struggled to maintain homeownership levels despite the optimistic bright spots in the broader Detroit market. Nearly one in four Detroit properties were tax-foreclosed between 2011 and 2015. Land contracts have emerged as the most popular method for a leveraged home purchase. In a land contract, the previous owner remains the title holder until the balance is paid in full. That means the new buyer is not afforded the same standardized protections in place with traditional lending. To this end, fewer than 1,000 Detroit homes were reported to have been purchased with a traditional mortgage in 2017.
These dynamics have transformed Detroit from a place where blacks were primarily owners into a city of mostly renters. In 2016, 54 percent of residents rented, compared with just 45 percent in 2000. (source)
Multiple factors have contributed to this lack of credit:
- Property appraisals are distorted in Detroit from a lack of comparable properties for renovated buildings. A high number of distressed sales, made it difficult for potential homebuyers to receive loans for the amount they need. In poorer east side neighborhoods, homes sold last year for $4,000 to $40,000 in cash, according to Realcomp data. A few miles away in downtown and Midtown, homes and lofts sell for $250,000 or more, the records show. The wide variation made comparing like-kind properties – and therefore mortgage underwriting – almost impossible.
- Only 21 percent of Detroit households have credit scores that are prime (661 or higher). The average credit score in Detroit is 585, compared with 670 nationally. This means that even with the property value problem solved, there are few qualified buyers to take advantage of mortgage financing.
- Past debt limits residents’ access to credit: 66 percent of Detroit residents have debt in collections. Residents with debt in collections owed a median amount of $1,847, which is $400 more than the median amount owed by residents in the rest of the Detroit metropolitan statistical area.
- Additional factors that affect residents’ access to credit include high debt-to-income ratios and difficulties obtaining title and homeowners insurance.
Black homeownership matters: Home Ownership Path Program (HOPP)
Housing Joint Venture strives to solve the housing crisis and woeful African-American homeownership shortage through the Home Ownership Path Program. The purpose of this loan is to bridge the gap in homeownership in low-cost housing communities.
Cash: Due to the alarming number of people who live paycheck to paycheck, the average person finds it difficult to save the 3% to 5% minimum down payment required.
Credit: There are 68 million people in the united states with poor or low credit scores(lower than 601) (source). The majority of these people are not eligible for a mortgage simply because their credit score falls below 580.
Collateral: Traditional loans require a passing appraisal inspection. There cannot be any repairs needed and the value needs to meet or exceed loan to value requirements or the purchase price.
Individually or in combination, these three reasons can cause an applicant to be denied.
HOPP intends to give the challenged borrower the opportunity for homeownership that they would not have at a traditional bank. The program provides financial education, mentorship and guidance throughout the duration of the mortgage term. HOPP also, eliminates most of the tedious and long underwriting process. The ultimate goal is to prepare the borrower for a traditional loan within 3 years all while improving the financial aptitude of the community.
Cash: HOPP does not require a large amount of money out of pocket.
Credit: HOPP does not focus on credit score. HOPP focuses on the potential in the person therefore the financial and credit education is provided to the homeowner.
Collateral: Housing Joint Venture eliminates the need for the long drawn out process of an appraisal by ensuring that the house is properly repaired and using third party Broker Price Opinions for valuations.
The HOPP Cycle
- Housing Joint Venture purchase a suitable property in target neighborhood(s)
- Joint Ventures are created with HJV Partners.
- Money is used to repair a home.
- Home is sold to a Homeownership Path Eligible Prospect
The end result is HJV partners profit while increasing black home ownership and reducing blight.