St. Paul officials have put some money down on two new loan programs to help homeowners facing foreclosure and buyers unable to secure financing. The city's Housing and Redevelopment Authority board has approved putting $625,000 into funds for two mortgage incentive programs that will leverage dollars from private organizations. The money will help current homeowners refinance out of bad mortgages and provide an incentive for people to purchase vacant or foreclosed properties in Saint Paul.
The $625,000 comes from the Invest St. Paul program, a $17 million initiative to improve four struggling neighborhoods. Because of lowering property values, home vacancies, and mortgage foreclosures, the neighborhoods of Frogtown, North End, Lower East Side and Dayton's Bluff have been targeted for the project. The money will unlock $15 million divided equally between the Make it Possible and Sustainable Home Ownership programs. The Make It Possible program provides second mortgages, which eliminate the need for private mortgage insurance. The Sustainable Home Ownership program is a contract-for-deed program that gives buyers time to repair credit scores before moving into a conventional mortgage. Both of these programs will be administered by Dayton's Bluff Neighborhood Housing Services. The Family Housing Fund and University Bank are contributing more than half of the $15 million.
It's just one more idea with which Saint Paul is experimenting as it grapples with the subprime mortgage fallout and the skyrocketing number of vacant buildings within city limits. For the past several years, St. Paul has spent more than $2 million per year to inspect, secure and maintain vacant buildings, not including police or fire services. It is hoped that these programs will help more people to get into houses or get out of foreclosure threats. In an ideal situation, people will use the programs buy vacant houses and help stabilize neighborhoods.
The foreclosure crisis has tightened up the mortgage markets and some people who would have normally qualified for 30-year fixed rate mortgages can no longer qualify. In addition, Minnesota has been declared as a declining market which means that appraised values are being reduced automatically by 5-7 percent before the underwriting even begins. This requires a higher amount of funding in order to close. The market for private mortgage insurance also tight, making it difficult for buyers who are required to purchase private mortgage insurance when securing a mortgage that exceeds 80 percent of the appraised value.
The Make it Possible Program will loan up to $1.75 million in a second mortgage product provided by the Family Housing Fund. In order to use these funds for this type of program, a Reserve Account in the amount of $250,000 is required to cover any possible foreclosures that may occur within the payback period. The Saint Paul HRA Board has agreed to provide the necessary funding for this reserve account. Under Make it Possible, a 3-percent down payment will be required of buyers/borrowers. Buyers/borrowers who qualify for a first mortgage representing 80 percent or less of the appraised value of the property through a private mortgage lender under standard underwriting criteria will be able to receive the difference of up to 20% of the remaining value in a second mortgage loaned at 3.5 percent payable over a 15-year period. This eliminates the need for a buyer to purchase private mortgage insurance when a loan exceeds 80% of the appraised value.
Loans will be made in the name of the Family Housing Fund and serviced by Community Reinvestment Fund. Daytons Bluff Neighborhood Housing Services will be the program administrator and loan originator of the Make it Possible Program. This program can be utilized by existing homeowners to refinance variable rate mortgages into a long-term, fixed-rate mortgage, or for new mortgages for homebuyers.
The Sustainable Home Ownership program is a partnership between the City’s Department of Planning and Economic Development and the Dayton’s Bluff Neighborhood Housing Services working together with local lender, University Bank and the Family Housing Fund. University Bank will loan up to $6 million and the FHF up to $1.5 million secured by mortgages and recourse to DBNHS. This program provides qualified purchasers the option to enter into a Contract for Deed at a rate of 7.5 percent amortized over a 30-year term with a balloon maturity date in three years or when the purchaser secures a fixed mortgage, whichever occurs earlier. University Bank will finance up to 80 percent of appraised value and the Family Housing Fund will finance the remaining balance less the purchasers down payment. A Reserve Account of $375,000 is required to leverage the $7.5 million to fund this program.
The Saint Paul HRA Board has agreed to provide the necessary funding for both of these reserve accounts. These innovative pilot programs are a result of a collaborative partnership among St. Paul’s Planning & Economic Development staff, the Family Housing Fund, Dayton’s Bluff NHS, University Bank, and the Community Reinvestment Fund. The programs are focused on expanding economic opportunity and strengthening our neighborhoods. Good homeowners are the bedrock of strong neighborhoods, and these programs will help people to stay in their homes and provide an opportunity for others to finally own their own home.