Michigan State Housing Development Authority, Great Lakes Capital Fund and Sustainable Communities Fund Provide Critical Innovation Capital to Support the Habitat Mortgage Program
Habitat for Humanity of Michigan (HFHM) and Habitat for Humanity Michigan Fund (HFHMF) announced plans to launch the “Affordable Community Mortgage Program” (“Community Mortgage”). Community Mortgage is an innovative program resulting from collaboration with Michigan State Housing Development Authority (MSHDA), the Great Lakes Capital Fund (GLCF) and the Sustainable Communities Fund (SCF).
This first of a kind mortgage program allows Habitat Affiliates, which typically build the homes, to connect prospective homeowners to a Community Mortgage where they may be eligible for a no-profit mortgage with a locked-in, lower-than-market interest rate. The model was created to substantially increase new home construction, rehabilitation, repair and clean-up that otherwise would only be provided through donations from Habitat affiliates.
“Community Mortgage is a cost effective way to finance the home built by Habitat affiliates, thus allowing them to substantially increase the number of families who will be able to experience the American dream of home ownership,” said Sandy Pearson, Habitat for Humanity of Michigan president & CEO. “This new innovative financing program is an example of how public-private collaboration can help ‘ReBuild’ Michigan.”
Creative partners have stepped in to provide the key pieces of capital necessary to make this cutting-edge financing program work. In particular, MSHDA has played a central role. “MSHDA sees the great potential of this model. The Authority has agreed to purchase up to $2 million of these mortgages, which must meet very specific and prudent underwriting guidelines. All involved expect Michigan’s communities and families to benefit,” said MSHDA Executive Director Scott Woosley.
Another critical capital component was the $200,000 Loan Loss Reserve provided by Great Lakes Capital Fund. Executive Director of GLCF, Mark McDaniels, explained their involvement as being core to his organization’s mission: “As long-time lenders to affordable housing, we want to be part of an initiative such as this that seeks to create a new model for expanding the capital base behind affordable housing – this model has the ability to provide tremendous impact for the residents of Michigan.”
In order to jumpstart the financing model, Sustainable Communities Fund provided $66,000 and HFHM $44,000 for the initial pool of mortgage capital that will be cycled through the model. The Chair of SCF, Deborah La Franchi, explained their interest in this new model: “SCF provides innovation capital to new and innovative financial vehicles that both benefit the poor and are still in their prototype phase – our core goal is using our capital to help prove this is not only viable, but scalable as well. Habitat Mortgage has the potential to be a game changer in for-sale housing serving low-income families.”
The paradigm change referenced by the various partners is due to how the model works, and changes how Habitat Affiliates in Michigan can think about funding the houses they build. A Habitat Community Mortgage provides the homeowner with a note, and the Habitat Affiliate that built the home receives the proceeds of the sale of the home. This capital provides the Affiliate with the financial means to construct a new home faster without relying on raising all the donations typically required to build the next home. Concurrently, MSHDA purchases the mortgage note from Community Mortgage, thus replenishing the pool of mortgage capital that allows Community Mortgage to finance the next Habitat homeowner.
HFHMF, which is responsible for the origination, underwriting and loan servicing, is currently reviewing the first initial transactions. This model has commitments from its current funding partners to finance up to $2 million in mortgages.
“This innovative model, and the partners that are providing the different pieces of capital, have created a new means for Habitat affiliates to dramatically increase the number of homes which can be provided to poor families,” explained Sandra Pearson. “Because MSDHA is purchasing these mortgages, and replenishing our capital available for the next mortgages, we are substantially less reliant on raising donations to cover the cost of each home – thus saving time and dramatically increasing our volume of homes to low-income families.”
Going forward, HFHM’s ReBuild Michigan Campaign will continue to grow its partnerships and services to help families in need and revitalize neighborhoods. Habitat Michigan is excited to shift its focus from being a house building nonprofit to a neighborhood impact movement and community development partner. According to David Bird, President of Habitat for Humanity Michigan Fund, the organization is now offering the Habitat Mortgage program as an initial pilot program with selected affiliates, and will increase its pace of lending. As the program matures, it has a much larger vision. “The short-term vision is to show that this model works, such that we can add additional mortgage purchasers and mortgage pool lenders with the medium-term vision of providing this program broadly throughout Michigan, and the longer-term vision of expanding the program regionally and nationally where other housing agencies, authorities and other partners may want to participate.”