Innovative Local Programs Advance and Preserve Middle-Income Homeownership

Programs like MHP ONE Mortgage and ONE+Boston use innovative financing mechanisms to spur middle-income homeownership.

Middle-income households nationwide face numerous challenges when it comes to purchasing and maintaining housing. Local organizations are exploring how innovative housing finance mechanisms can make homeownership viable for more households. On September 17, 2024, the National Community Stabilization Trust (NCST) hosted a webinar on the subject, "Strategies to Assist Middle Neighborhood Homebuyers and Owners in a High Interest Rate Environment." Marcia Nedland, an organizer at NCST's Middle Neighborhoods Community of Practice, moderated the event, which highlighted innovative financing programs that seek to preserve middle-income neighborhoods. Presenters at the event included Candy Ayers, director of homeownership services at the Community Action Program of North Alabama (CAPNA); Elliot Schmeidl, director of homeownership for the Massachusetts Housing Partnership (MHP); and Rachel Mulbry, director of policy and strategic initiatives at the Philadelphia Housing Development Corporation. Participants discussed how their organizations are working to preserve racial and economic diversity and housing stock in middle-income neighborhoods.

Nedland opened with a review of the Middle Neighborhoods initiative, a joint project of NCST and NeighborWorks America "to reverse the disappearance of middle neighborhoods." These neighborhoods contain what some cities call "missing middle" or "workforce housing" and primarily consist of single-family homes built for families with children. These areas generally are still more than 50 percent owner occupied, although that percentage has eroded over time, and have an aging housing stock that, although not distressed, may lack features to be competitive. Middle neighborhoods tend to be racially, ethnically, and economically diverse. "Middle neighborhoods are those mixed-income communities that most of us in community development are always trying to create or maintain," said Nedland.

Empowering Middle-Income Buyers

Local governments and organizations are finding new ways to preserve middle-income neighborhoods by empowering new homebuyers. Ayers discussed one such approach in Decatur, Alabama. Amid soaring home prices and broader economic challenges following the COVID-19 pandemic, Ayers' organization partnered with the city of Decatur to leverage community development block grant funds to reduce monthly mortgage payments. The partnership builds on the city's H.O.M.E. Buyer Assistance Program, which pays up to half of the minimum required downpayment and all closing costs on a home for households earning up to 120 percent of the area median income (AMI). According to Ayers, this program previously provided homebuyers up to $4,500 in assistance; the new arrangement raises the limit to approximately $15,000 and allows buyers to use the funds to buy down interest rates by up to 2 percent. So far, according to Ayers, the program has helped one homebuyer save $63 a month, or $22,320 over the life of the mortgage, on a home worth $200,000. Nedland described this partnership as an example of "something most [nonprofits] that do homeownership services could probably pull…off in the next year" if they had a willing local government with a downpayment assistance program.

Other regional organizations are developing large-scale programs that use innovative financing mechanisms to spur middle-income homeownership. Schmeidl discussed two programs, MHP ONE Mortgage and ONE+Boston, that MHP operates with a combination of local and federal funds. MHP, a statewide public nonprofit, has financed more than 21,000 affordable rental units and offers a range of programs to promote homeownership. The MHP ONE Mortgage and ONE+Boston programs aim to make homeownership financially viable for low- and middle-income buyers who otherwise would be denied mortgages.

MHP ONE Mortgage is a state-sponsored, below-market mortgage product targeting first-time homebuyers with the goal of addressing patterns of racial discrimination in mortgage lending. ONE Mortgage's interest rate is fixed for 30 years and is offered at a discount through participating lenders, with lower minimum downpayments and an alternative to costly private mortgage insurance. In addition, households earning less than 80 percent of AMI can qualify for a zero-percent interest subsidy from MHP. The program is reserved for first-time homebuyers earning no more than 100 percent of AMI with liquid assets totaling less than $75,000; participants must also complete a homeowner education course. Assistance from other sources, such as municipal downpayment programs and Section 8 vouchers, does not count toward the asset limit. The MHP ONE Mortgage program has assisted more than 25,000 first-time homebuyers. Schmeidl reported that out of the 622 loans made through the program in 2023, 70.6 percent went to households including people of color, and 51 percent went to households earning less than 80 percent of AMI.

The second program, ONE+Boston, uses interest rate discounts to bring down mortgage costs. This partnership between MHP, lenders, and the city of Boston leverages public funds to provide interest rate discounts of 100 basis points (or a 4% discount on the loan amount) for households earning 80 percent to 100 percent of AMI and 200 basis points (or an 8% discount) for households earning less than 80 percent of AMI. The program has an interest rate floor of 2 percent and provides up to $75,000 per household. In addition, the lender agrees to repay MHP a prorated portion of the funds if buyers pay off the loan in less than 2 years. The ONE+Boston program issued 196 loans in 2023, 67 percent of which went to households earning less than 80 percent of AMI and 67.7 percent of which went to households including people of color. Although only Boston-area homebuyers are eligible for the ONE+Boston program, MHP has a similar program in the city of Lowell (called ONE+Lowell) and plans to eventually implement this approach statewide. Schmeidl acknowledged the need to ensure that these programs are both helpful to recipients and financially sustainable in their application of funds, increasing the programs' reach. With this balance in mind, the ONE+Boston program can achieve "striking" results; the increase in purchasing power can mean the difference in allowing middle-income households to stay in Massachusetts.

Preserving Middle-Income Housing

Some local governments are using their funds to help existing homeowners preserve their homes in middle neighborhoods, improving the housing stock and residents' financial well-being. Mulbry described the Philadelphia Neighborhood Home Preservation Loan Program, also known as Restore, Repair, Renew (RRR) which the city launched in 2019. This initiative offers eligible homeowners 10-year home repair loans for up to $50,000 at 3 percent interest. Financed with $40 million in local bond proceeds and administered by the Philadelphia Housing Development Corporation, the program targets homeowners who earn too much to qualify for existing repair grant programs. Qualifying households can earn up to 120 percent of AMI and must have a minimum credit score of 580; the loan-to-rehabilitation value cannot exceed 105 percent of the post-rehabilitation value.

As of September 2024, the RRR program has facilitated 478 loans with a total of $14.3 million committed; the average loan is $39,000 per household. According to Mulbry, the program is helping to reverse inequities in home repair loan denial, citing research finding that single women and people of color are disproportionately rejected for the loans. The average annual income for RRR loan recipients was $60,000, and the program has maintained loan delinquency rates of less than 3 percent; 72 percent of recipients were female, and 62 percent were Black. Recipients who were surveyed at least 6 months after making the repair reported feeling healthier, safer, and happier in their homes. Mulbry noted, however, that debt-to-income ratio remains the biggest challenge, which was the reason behind 44 percent of all program denials.

The Future of Middle Neighborhoods

By creatively leveraging existing programs to support and maintain homeownership or crafting new ones, local governments and nonprofits can help preserve the economic and racial diversity of middle-income neighborhoods. Ayers and Schmeidl acknowledged that the longevity of these programs relies on local buy-in and funding availability, which is not static. Balancing the need to maximize the programs' reach and their impact on individual recipients will require stakeholders to exercise continued flexibility and innovation. Even with these challenges, participants agreed that programs to promote homeownership can help address the ongoing affordable housing crisis. "This is a tool we have right now to help," said Schmeidl.