Mayor Mitch Landrieu announced that the City of New Orleans’ $52.3 million “soft second” mortgage homebuyer assistance initiative has now issued over 700 commitments to first time homebuyers representing over $40 million in purchase assistance and closing cost assistance. In total, through the Direct Homebuyer Assistance Program 640 home purchases by first time homebuyers have been completed through the success of the City’s soft second mortgage program. The goal of this initiative’s Direct Homebuyer Assistance Program is to strategically promote homeownership opportunities for low and moderate income persons and families who are buying their first homes. The City’s Office of Community Development directs this program by providing hundreds of New Orleans families an opportunity to become first-time homebuyers.
“The City’s Soft Second mortgage program continues to be an outstanding success in helping New Orleans residents buy their first home,” Mayor Landrieu said. “We are hoping that first time homebuyers that are interested in participating to Direct Homebuyer Assistance Program will work with their mortgage lender and submit their application to the City by Wednesday, July 30, 2014.”
Applications submitted after Wednesday, July 30, 2014 will be considered only if sufficient funding is available.
First time homebuyers are encouraged to consider purchasing houses that have been or will be rehabilitated or constructed under the Affordable Home Development Program. Soft Seconds will be available to eligible first time homebuyers until October 2014. Forty two (42) houses have sold under this program. Most of those properties were transferred to the builder by the New Orleans Redevelopment Authority for the purpose of providing housing opportunities to low and moderate income residents. Approximately 65 additional properties will be available for purchase.
Funding for this initiative comes from federal Disaster Community Development Block Grant dollars provided by the State of Louisiana for housing recovery from hurricanes Katrina and Rita.
The term “soft second” comes from the fact that the government is assisting potential homeowners through forgivable loans to purchase property and become first-time homebuyers. This subsidized loan bridges the affordability gap between the price of the home including closing costs and the maximum amount a homebuyer can borrow with a first mortgage loan. The homebuyer receives only the amount of soft second funding that is needed to close the affordability gap which will be determined by need and annual household income.
The “soft second” mortgage homebuyer initiative is a successful collaboration of the City, lenders, and homebuyer counseling agencies. The following are highlights to date:
Twenty-nine (29) New Orleans banks have participated in the City’s program.
501 of the 640 closings have been for households earning less than 80% of the area median income. The City is exceeding its goal of at least 50% for this income group.
The average “soft second” mortgage is approximately $51,709.20 and the average closing cost assistance grant is approximately $5742.80.
The average purchase price of houses purchased with this program is $145,037.
The Direct Homebuyer Assistance Program provides down payment and closing costs subsidies to eligible first- time homebuyers. The subsidies will bridge the affordability gap between the price of the home including closing costs and the maximum amount a homebuyer can borrow with a first mortgage loan. The homebuyer will receive only the amount of soft second funding that is needed to close the affordability gap.
The Affordable Home Development Program is designed to provide a steady inventory of houses that will be available for sale and be affordable to residents of low and moderate income. Through an open and competitive process, the City and the New Orleans Redevelopment Authority (NORA) made underdeveloped properties available and reserved soft second subsidies for the purchasers of homes completed under this initiative. The program encourages the rehabilitation of blighted, historic properties and infill housing. To date, 100 houses are under construction or being rehabilitated under this program. 15 houses have been completed and 6 have sold to soft second eligible households.
These programs spur mixed income development in areas across the City by assisting families with incomes up to 120% of the Area Median Income (AMI) to purchase single family homes in New Orleans. At least 50 percent of the program funds will be targeted to homebuyers at or below 80% AMI. Homebuyers with incomes at or below 80% of AMI will also be eligible for up to $10,000 down payment and closing cost assistance in both programs. Homebuyers with incomes between 81% and 90% of AMI will be eligible for up to $5,000 in down payment and closing cost assistance.
These programs will continue to be implemented in a manner that is consistent with the Mayor’s place-based development strategy and will promote housing development and neighborhood stabilization to leverage the City’s current investments in infrastructure. To participate in the program, potential homebuyers can apply through a participating realtor, lender, or homebuyer training provider. Once the applicant applies and is approved for a first mortgage at a participating bank, the lender will then send documents to the city to review eligibility and to determine the amount of the subsidy. All reviews at the City and State level are completed before a house can move to closing. A list of lenders, realtors and housing counseling agencies currently participating in this program is attached to this release.
In order for participants to be eligible for any level of forgiveness of the subsidy, the homeowner must reside at the house for a minimum of 5 years. The homeowner must repay the “soft second” mortgage in full if the first mortgage goes into default or if the house is sold within the first 5 years. Twenty-five percent of the “soft second” loan is forgiven after year 5 and an additional 15% each year thereafter until the loan is zeroed out after 10 years.
“The success of the soft second initiative demonstrates the value of collaboration and planning,” said Brian Lawlor, Director of Housing Policy for the City of New Orleans. “We have worked with our partners in all sectors to develop strong programs that will leverage private resources and allow us to continue our efforts to rebuild our great city.”
“The City of New Orleans has done a great job implementing this program, and the result is that 640 families that didn’t own homes before will now be proud homeowners. In addition to helping these families establish equity and put down permanent roots, the program is making neighborhoods stronger by bringing more houses back into commerce,” said Pat Forbes, Executive Director of the Louisiana Office of Community Development. “Combined with the billions of dollars of investments made through the Road Home, the Small Rental Property, the Low-Income Housing Tax Credit ‘Piggyback’ and other housing programs, these Soft Second dollars are a great investment in the future and resiliency of New Orleans.”
“This is evident of what can happen when the city and the community works together,” said Jacqueline C. Jones, Lead Organizer of the Jeremiah Group. “In the aftermath of Hurricane Katrina, The Jeremiah Group fought for and won a unanimous vote from the LRA supporting Project Homeownership, a $75 million Affordable Homeownership and Blight Reduction Strategy using zero interest soft-second mortgage to make homeownership affordable for working families and to restore thousands of blighted properties throughout metro-New Orleans. The strategy would not have worked without the collaboration between the citizens and Mr. Brian Lawlor, Director of Housing for the City of New Orleans. This partnership was the key that opened the door for 640 families, who are now first time home buyers. We are excited to have secured the funding to create the largest affordable homeownership strategy in city of New Orleans’ history.”