Financing The Future of Homeownership in Detroit
- Anthony Barr
- 2 days ago
- 8 min read
In 2024, The Kresge Foundation partnered with the National Bankers Association Foundation to support research into the social impact of mortgage lending from minority banks. Our research highlighted how minority owned/operated banks originate a higher share of mortgages to minority borrowers and to minority communities than non-minority banks. We also outlined a variety of constraints and barriers that limit the volume of lending from minority banks.
This year, a continuation of our partnership, focuses on identifying strategies and partners to address the challenges outlined in the 2024 report. In late March, we spent a week meeting with stakeholders in Detroit including representatives from banks and credit unions, community development organizations, philanthropy, and city government. In this short article, we offer some reflections on the insights gathered from these conversations and highlight where we are seeing new opportunities for driving social impact through community finance.
Resetting The Market After Citywide Economic Crisis
Detroit is the country’s largest Black-majority city and is at the forefront of implementing cutting-edge community development initiatives. Despite experiencing economic setbacks, including huge shocks from the 2008 market crash which ultimately culminated in municipal bankruptcy in 2013, the city has emerged in a position of strength through the leadership and hard work of its ecosystem of community-based organizations. In 2018, the city of Detroit experienced an important milestone in its post-Great Recession economic recovery: the city saw more than 1000 mortgages issued in one year for the first time since 2006. A few years later, in 2023, the number of mortgages had tripled, reaching nearly 3600 mortgages.
The growth in mortgage lending in recent years stands in sharp contrast to where the city was just a short time ago. In reflecting on the aftermath of the Great Recession, University of Michigan lecturer Chris Mueller notes that, “we just didn’t experience a depression, or a decline in values. We went all the way to the point where the [mortgage] market stopped working.”
One key component to resetting the market was the Detroit home mortgage program – a three year initiative born out of the mayoral administration in partnership with public, private, and philanthropic stakeholders. Through this program, participating lenders offered a second lien loan, up to $75k, which covered the appraisal gap between the purchase price and appraisal value. This second loan was also able to be used for repair and rehab the purchased homes to increase the market value.
While the Detroit Home Mortgage program, as originally designed, was eventually sunset, Liberty Bank and Trust – a Black bank with branches in Detroit - continues to offer a similar loan product. Liberty’s product bases the issued mortgage loan on an estimated post-rehab home value, thus covering appraisal gaps and providing working capital to rehab the purchased home. This product is vital in a city where much of the housing stock is old and in desperate need of repair. The program allows native Detroiters to finance development, rather than development solely occurring through the activity of outside speculators.
The Current Strategy: Block by Block, Neighborhood by Neighborhood
In the early stages of post-bankruptcy, much of the city’s focus was on revitalizing historical districts and the immediate downtown core. The next phase was focus on driving community and economic development in neighborhoods. Here too, we see strong signs of progress that can be replicated.
During site visits to local communities across the city, we spent time with neighborhood organizations in the 48205 zip code. A decade ago, this was one of the deadliest zip codes in Detroit. Today, it's at the center of block-by-block revitalization. Groups like LifeBUILDERS, Osborn Neighborhood Alliance, and U Snap Bac are "de-risking neighborhood conditions" by turning vacant houses into affordable homes and rental units, creating neighborhood parks, and leading after school programming for youth. This essential work paves the way for market-based development to take place: as one stakeholder told us, the key is "layering interventions in the right way and in the right order” to "reset neighborhood values and unlock lending."
Block by block development starts with being willing to show up. For example, in our conversations with First Independence, a Black-bank headquartered in Detroit, bank leaders spoke proudly about offering its banking services in the Avenue of Fashion, the heart of Black entrepreneurship in Detroit. Block by block development also provides a great opportunity for philanthropy, impact investors, and big banks to help mitigate underwriting risk, for example through loan loss reserves or guarantees that can enable bank lending that would otherwise be deemed too risky by bank regulators.
The Current Financing Gap: Home Repair
Today, Detroit has a functioning mortgage market, and many homes are being renovated or constructed and sold. However, too much of the current housing stock remains in disrepair. To address this need, the city’s nonprofit ecosystem offers various grant programs. But though grant funding for home repair is important - especially for emergency repairs - there's not enough grant money to meet the need. Several interviewees told us that there's at least $2billion worth of repair work needed: and in the words of one interviewee, "we’re not going to get there if there’s not a lending market that operates like the mortgage market." Of course, many people prefer receiving a grant to taking out a loan, but given the scarcity of funding, we think it’s important for grants to be used to address market failures, while allowing the market to function in places where it can do so.
More specifically, there is a need for a two-stage system: in the first stage, current homeowners are provided grants for deep repair work to cover gaps where the cost to meet current needs is out of sync with the market value of the homes. These should be earmarked for instances where the gap is large enough that banks can’t underwrite a loan to cover the gap. After the initial deep repair is completed, the home becomes an asset that can be collateralized. The homeowner or homebuyer can then graduate to a bank loan for broader renovation that transforms the home from merely habitable to an appreciating asset. CDFIs could also potentially help as an intermediary in this process, for both grantmaking and lending. The two-stage process can ensure that we don’t throw good money after bad: a small grant that only temporarily fixes one issue can be quickly undermined if the rest of the repair needs are left untouched. We must approach repair from the standpoint of systems-thinking, and we need to be honest about the costs involved. In the words of one interviewee: “we have to be comfortable with the fact that this is expensive, and we need to be comfortable spending the money. It’s okay to spend $40k on somebody’s home. That’s actually the least expensive way we can retain housing.”
In keeping with the neighborhood-level strategy outlined in the previous section, we think there are opportunities to tackle renovating whole neighborhoods at once: this approach means pulling the funding together, offering ready-made pipelines for contractors and developers, and ensuring that cumulative value is realized simultaneously and across a broader base. Several of our interviewees agreed that such an approach could be transformational but cautioned that this kind of approach requires some heavy lifting on the front end. In particular, this approach requires paying close attention to the current social conditions of a given neighborhood which can mean that interventions around public safety are a prerequisite; auditing the current ownership of homes within that neighborhood to ensure that the homeowners have clean titles and that the homes are not owned by outside speculators; and ensuring that there is enough community buy-in to guarantee commitment to meaningful participation.
Money matters for this work, but so does education and workforce development.
While much of the ongoing work centers around lending, there are other significant needs and opportunities around homeownership too. For example, in our conversation with First Independence Bank, they spoke about efforts to address estate planning with a goal of helping seniors keep their homes in the family. Similarly, various interviewees also highlighted the need for educating borrowers looking to rehab their homes about how to select general contractors, how to bid out the work, and how to budget money to support their long-term financial goals.
In addition to consumer education, several interviewees stressed that Detroit needs more workforce development to fill jobs across the lifecycle of this revitalization work. Attention to workforce development is thus both a means to address economic mobility for workers and a requirement for meeting the needs of the city at the required scale. In particular, Detroit needs more general contractors and developers to work on homes, inspectors to certify the work on those homes, appraisers to assess the new market value of those homes, realtors who can sell those homes, etc.. In addition to the technical skills specific to their role, these professionals need to see a greater vision for how their work drives city-wide revitalization. And of course, these people need affordable homes to live in themselves.
Education and workforce development represent another area where there is continued need for public-private partnerships and collaboration across sectors. We see opportunities here to braid funding sources to pay for apprenticeship and skills training initiatives via funding from federal/state/local government, philanthropy, and the private sector. We also think that local community-based organizations need to be at the forefront of this education work, to ensure that there is values alignment and a broader understanding of the mission and goals of this community work.
Conclusion: Where Do We Go from Here
First, we think the city should continue to support mission-driven lenders like First Independence Bank and Liberty Bank & Trust Co, and to partner with impact investors and other sources of patient capital. Together, lenders and capital providers can provide additional financing to upgrade housing stock, finance home construction, and issue affordable mortgages to borrowers. In addition to home repair, we believe that by leveraging capital markets, we can continue the positive feedback loop of more home sales, leading to more home comps, higher appraisals, and rising home values, which culminates in turning houses into appreciating assets for homeowners and their community.
Second, we think that philanthropic organizations should continue to play a significant role in place-based development, particularly as a source of catalytic capital to de-risk development and crowd-in additional private sector dollars. As anchor institutions with convening power and significant financial resources, philanthropic entities are especially well-positioned to drive neighborhood-level development. Philanthropic support can also help address funding cliffs or gaps and help provide stability in periods of sudden or drastic changes in federal or state funding and programming.
Finally, we see an ongoing role of government at every level. For example, in March of this year, the city of Detroit announced a novel use of American Rescue Plan funds to launch a new Downpayment Assistance Program – in partnership with 13 lenders including the two Black banks in the city, First Independence and Liberty Bank and Trust. This initiative reflects the evergreen value of complimentary action across federal, state, and local levels of government. Future legislation at various levels of government aimed at addressing home ownership can likewise enable programs and partnerships that take shape in local communities.
Detroit is a resilient city – and the efforts of so many stakeholders to resurrect the mortgage market stands as a testimony to the power of the residents willing to do the necessary work to ensure the community thrives. While much progress has been made, we know that there is more work to be done. In the months ahead, we will continue to leverage our partnership to explore ways for community finance to support inclusive growth in home homeownership and broader economic development in Detroit and across the nation.
(Many of the above insights are based on conversations with the following organizations/people: Balmer Group; Enterprise; David Palmer, Kite and Key Partners; Detroit First credit union; Detroit Future City; First Independence Bank; Krysta Pate, consultant; Heather Zygmontowicz, city of Detroit; Hudson Webber Foundation; Kresge Foundation; Liberty Bank and Trust; LifeBuilders Detroit; Osborn Neighborhood Alliance; Rocket Community Fund, and U-Snap-Bac.)
About the Authors:
Anthony Barr is the Research and Impact Director for the National Bankers Association Foundation where he leads research on topics including digitalization, financial wellness, and the racial wealth gap. Prior to this role, Anthony worked at the Brookings Institution where he focused on labor markets, post-secondary education and social determinants of health and safety. He holds a master’s degree in public policy from Pepperdine University.
Chris LeFlore is the Co-founder of BankBlackUSA, a nationwide grassroots organization that works to promote financial inclusion and wealth building through research and advocacy. He holds master’s degrees in public policy and urban & regional planning from the University of Michigan.