From nola.com, Mayor Mitch Landrieu announced a new program Thursday to encourage developers to build homes on spec for families of modest means, who will be eligible for a “soft-second” mortgage subsidy when the home is complete. The program will tap into $ 52.3 million in federal aid passed down from the state.
The subsidies offer families no-interest, no-payment loans of up to $ 65,000 to close the gap between what they can borrow from traditional first-mortgage lenders and the cost of a new home.
The “developer incentive” adds a new feature to a program that has had a roller coaster ride since Mayor Ray Nagin rolled it out in 2008.
Landrieu proudly told people attending the first annual New Orleans Housing and Community Development Conference that the segment of the city’s soft-second mortgage program — for first-time homebuyers who purchase existing homes — is finally picking up steam.
In the first six months since it was retooled, 80 families have qualified for second mortgages after completing 12 hours of training, securing a loan and finishing a detailed inspection of the home. The city has committed $ 3 million to finance 54 home purchases, more than half of which have closed.
“The soft-second program got off track for a little while,” Landrieu said. “But this has been a fairly successful launch — I want to call it a restart of the soft-second program. Since (October) we’ve worked hard and made a lot of tracks.”
Forty-four of the families approved for the subsidies make less than $ 50,000 a year. Smaller subsidies are available to families making up to $ 72,000.
Landrieu’s housing director, Brian Lawlor, said the program was set up with strict checks and balances, to ensure that people getting the subsidies have steady income, good credit and can handle homeownership. For instance, the buyer must spend between 30 percent and 33 percent of his or her income on the first note before becoming eligible for the forgivable second mortgage.
The soft-second cannot be more than half the purchase cost. And the highest subsidies of $ 65,000 are available only to those making less than 80 percent of the area median income.
A soft-second mortgage can be totally forgiven if a family stays in the home for 10 years. A percentage of the loan is forgiven after five years, and then after each year.
The developer-focused effort announced Thursday was supposed to start last fall, but Lawlor said the city soon realized it needed to work out kinks in the existing program. For the new program, the city is asking qualified developers to find vacant city-owned lots in targeted sections of town or from among a list of 200 properties bought out by the state’s Road Home program.
Lawlor said his team will select the best plans for grouping lots together and redeveloping them with energy-efficient homes, generally costing less than $ 165,000. The city is working with the New Orleans Redevelopment Authority to sell lots in bundles. The developers will get assurances that, if they find qualified buyers, they’ll get soft-second mortgages.
But there is some skepticism regarding the model. The community organization Jeremiah Group, which was instrumental in getting the original soft-second program started, doubts developers will want to build without assurances they can find qualified buyers.
“We don’t think contractors are going to be fighting to get to the table,” said Jackie Jones, lead organizer for Jeremiah. “It’s not the best strategy. The fact the builders will have to find the buyer at the end, developers will see it as very risky. There’s no upfront money; not that I think there should be, but it’s just very risky.”
One builder in attendance, Dwight Walker, said that’s why he’s not interested.
“The program is a good program, but why don’t they come out with a program for homeowners who already own their lots and lost their home in Katrina, instead of doing speculative housing?” asked Walker, owner of New Orleans Demolition Services Homebuilders.
Similarly speculative efforts have fallen flat in the past. In fact, the program that was cannibalized to finance the new effort, the state’s Small Rental Property Program, hit snags when it called on landlords to identify low-income renters in order to qualify for aid. Asked whether the city might consider connecting builders with buyers, Lawlor said that wasn’t the city’s job; it’s for real estate agents to handle.
Lawlor says developers will be able to take a promise of soft-second financing for a future buyer to their lenders to help get construction loans. Some lenders won’t honor that, but others have said they will, he said. There are also bridge loans available to help builders get from the construction phase to a sale.
It’s unclear how much of the $ 52.3 million directed toward the soft-second program will back the developer effort and how much will be just for homeowners buying existing houses. For more information on the soft-second mortgage programs, the city’s request for developer proposals and a map of the available properties for development, visit www.nola.gov/softseconds.