Detroit's mortgages return to pre-recession levels, still face obstacles
Detroit — Nearly 1,300 home buyers took out mortgages in the city in 2018, a number not seen here since before the Great Recession.
The milestone signals a strengthening housing market in a city that once boasted one of the largest homeownership rates among African-Americans. But by 2012, the number of new mortgages had dwindled to just 244, a marker of economic distress.
More than six years later, most home sales still are all-cash, and many Detroiters cannot obtain a loan. But mortgages are appearing in more neighborhoods, home values are up and the city is attracting financial industry investment.
Chemical Bank, which recently moved its headquarters from Midland to Detroit's downtown, said last month it intends to merge with Wayzata, Minnesota-based TCF Bank. The new TCF Bank, potentially one of the largest banks in the nation, would be headquartered in the $60 million tower Chemical is planning at Elizabeth Street and Woodward Avenue.
“I think mortgages are a really powerful tool for residents who live in Detroit to access capital and improve their homes, open a business and make important life decisions,” said Rob Linn, interim inventory director for the Detroit Land Bank Authority. “Undoubtedly, Chemical’s presence will help residents access these tools.”
Bertha Alexander relied on one of those tools after she lost her home insurance on the Morningside bungalow she purchased through a land contract in 2013. It needed significant repairs that would cost money the 65-year-old great-grandmother living on a fixed income didn't have. Afraid she could lose her home without insurance, she contacted Chemical Bank and the Detroit Home Mortgage program about refinancing in 2017.
The nearly $55,000 in loans she closed in May, she said, cut her interest rate in half and funded repairs to her roof and moldy back room, the demolition of her tilting garage and renovated bathrooms. Next are new windows and carpet. She also has insurance again.
"There was no way I would have been able to do it," Alexander said. "I would drive up to my house and see (my roof), and it weighed on me. I'd see my neighbors doing their own projects. Now I got it. I can pay it from my income. I couldn't have done it otherwise. I don't know what I would have done."
In 2014, Chemical Bank’s leadership "adopted" the neighborhood surrounding Marygrove College where Chemical Financial Corp.'s chairman, Gary Torgow, grew up. At the time, it pledged $1 million over five years in $25,000 forgivable home repair loans to mortgagees there. It later learned, however, it could have a larger impact by working with nonprofit Southwest Housing Solutions to purchase homes, finance renovations and sell them.
Between the two projects, 22 homes have been upgraded. Another is expected to go on sale soon, and three more are in pre-development. Home values were around $40,000 when Chemical launched its program, but some now are selling for around $125,000.
Since then, the bank has joined other efforts to increase financial literacy and lending. A Heart & Home project it piloted last year offers up to $2,500 in closing cost assistance for low- and moderate-income households and since has expanded to other communities.
Most recently, Chemical joined six other businesses in pledging $5 million each over five years to the city’s Strategic Neighborhood Fund for affordable housing, parks and more. The bank also plans to add neighborhood branches in the city.
Maurice Cox, city of Detroit planning and development director, said Chemical Bank's move to Detroit is an endorsement that the city's recovery can be sustained.
"These are generational investments that they make," Cox said. "At the same time, seeing them willing to invest in the typical Detroit neighborhood that is trying to be revived, that’s just good news, and I think there will be more good news to come."
Teaming with TCF would accelerate Chemical's efforts in this area, said Chemical Bank CEO Tom Shafer.
“Being a $45 billion company headquartered in Detroit gives us real-time knowledge of what is going on so that we can craft solutions that are specific to the needs of the community,” he said. “I believe we’re in the beginnings of the recovery still. We think we can play a material role in Detroit’s recovery.”
Backers of the Chemical-TCF merger say the deal is reviving Detroit's financial chops: The city was home to several financial institutions until the 1990s when other banks began acquiring NBD Bancorp Inc., Manufacturers National Corp. and First Federal of Michigan. Then, in 2007, Comerica Inc. moved its headquarters to Dallas, Texas, leaving Ally Financial Inc. as the only major bank based in the city.
The Great Recession that followed led to job losses and thousands of foreclosures, sending black homeownership down to 40 percent from more than 50 percent in 2000, according to a 2018 report from the Urban Institute, a Washington, D.C., think tank. Back then, according to federal records analyzed by The Detroit News, the city had one of the highest rates of subprime lending in the country.
The recent mortgage revival has increased the number of loans to where they were a decade before. Last year, there were 1,271 mortgages on 4,573 residential and condo sales in Detroit, according to Farmington Hills-based real estate data firm Realcomp II Ltd. That's up 28 percent from 2017, surpassing 2008's 1,078 new mortgages. But Detroit still has a ways to go: In 2005, the city saw 3,932 new mortgages issued.
With new banking technology available, Steve Tomkowiak, executive director of nonprofit Fair Housing Center of Metropolitan Detroit, says he is doubtful Chemical’s relocation will have a large impact.
“Gary has always been committed to Detroit,” Tomkowiak said. “I’m sure his values will be reflected in that organization. ... But the location of a corporate office is less important today as people often seek lenders and apply for loans online. There still are not enough mortgage loans made in Detroit. (Chemical’s move) is good, certainly, but proof of the benefit will be if lending increases in Detroit. Show me the mortgages.”
Detroit, like many other low-income communities, he said, faces challenges with discrimination, though since the federal government eased public reporting requirements on measurements such as credit scores, it is difficult to prove.
Many Detroiters also do not have sufficient credit for banks to lend to them, and property values remain low, said John Mogk, a Wayne State University law professor who has studied Detroit’s housing market. The median value of the 48 percent of housing units occupied in the city was $42,800 in 2017, according to the U.S. Census Bureau. That is less than the customary $50,000 minimum mortgage many banks offer.
Property values, however, have risen the past two years, which may give some lenders more confidence, Mogk said. In 2018, residential properties gained more than $400 million in value and 90 percent of Detroit’s 194 neighborhoods saw increases in residential home values. The average increase in residential value citywide was 12 percent, with several neighborhoods seeing gains of more than 20 percent, according to the City Assessor's Office.
Still, a majority of houses sold are bought with cash, which makes it difficult for banks to appraise homes in some neighborhoods. Average conventional mortgage sales in 2018 were $195,425; their cash counterparts just $40,650.
In 2018, 3,220 residential properties and condos sold for cash — 70 percent of home sales, according to Realcomp. While it is down from 97 percent in 2014, according to the Urban Institute, the national average is 36 percent.
“A few neighborhoods are benefiting from all the good things happening with the economic recovery of the 7.2 square miles (downtown),” Mogk said. “But there is much of the 140 square miles in the city that is not being affected in any measurable ways.”
Slowly, however, more neighborhoods such as Warrendale and Regent Park are seeing mortgages with the support of loan assistance programs, Linn said. For example, in the Crary/St. Mary’s neighborhood on Detroit’s west side, he said, mortgages grew from zero in 2016 to more than 20 in 2018.
“To me, the most exciting thing is that they allow people to finance purchases where there isn’t a lot of mortgage activity,” Linn said. “We’re finding a powerful pool to invest in neighborhoods. DHM sort of opens up the way for new comps.”
Detroit Home Mortgage is a collaboration between the Michigan State Housing Development Agency, nonprofits including the Ford and Kresge foundations and five banks: Chemical, Flagstar, Huntington, Independent and Liberty. It offers low-interest mortgages and second loans up to $75,000 above the property’s appraisal for repairs.
The program has closed 228 mortgages since 2016, 8 percent of total home loans, said Krysta Pate, the program’s director. Eighty-six were in 2018.
The group now is focusing on rent-to-own land contracts, she said. She has seen homebuyers unable to obtain loans pay 10 percent interest rates with this method that lacks some protections of traditional mortgages.
“We want people to know you can get a mortgage in the city of Detroit,” Pate said. “We want to rebuild some of the generational wealth that was lost through the Great Recession. The way through that is homeownership.”
The largest obstacle, she said, is the shortage of move-in-ready homes, since even with funding, overseeing major construction projects can be a challenge.
The land bank authority's Rehabbed & Ready program tackles this obstacle. Quicken Loans, Detroit's largest home lender in 2018 with 439 mortgages, provided $5 million to partner with Home Depot to renovate 70 homes in the city since 2015. And there are plans, Linn said, to expand the program this year.
The largest contributor to blight in the city is the tax foreclosure cycle, affecting over the past 15 years more than 150,000 properties — roughly the population of Chattanooga, Tennessee, Quicken Loans said in a statement.
Quicken has contributed more than $21.5 million to philanthropic programs in the Detroit housing market to encourage households behind on their taxes to apply for property tax assistance, the company said.
First Independence Bank, a Detroit-based firm with three branches, also has offered workshops to assist Detroiters with budgeting, credit, mortgage financing and down payment assistance.
U-Snap-Bac, a group of seven neighborhood organizations and four business associations teamed to revitalize the east side, offers financial literacy classes and foreclosure prevention resources. In April, it also will work with two banks, including Chemical, to offer $7,500 grants for home repair projects to low-income households.
Last year, the organization had 832 people lined up outside its door to apply.
"People want to stay in their homes, and they want to stay in the city of Detroit," said Linda Smith, U-Snap-Bac's executive director. "The more banks around, the more lending that will take place."