Rebuilding North Minneapolis

1. Rebuilding North Minneapolis A Presentation By: Stephanie Gruver, Special Projects Coordinator Greater Metropolitan Housing Corporation, 501c3 15 S. 5th Street, Suite 710, Minneapolis, MN 55402 Phone: 612-339-0601 Fax: 612-339-0608

2. Greater Metropolitan Housing Corporation (GMHC) 501c3 • Mission: To preserve, improve and increase affordable housing for low and moderate income families, as well as assist communities with housing revitalization. • GMHC was founded in 1970 as a nonprofit organization by the Minneapolis business community. Since 1970, GMHC has constructed or renovated 1,351 homes with a total development cost of $132,605,893. Currently, GMHC has 181 homes under development for a total development cost of $36,200,000. • In addition to single-family new construction, GMHC provides predevelopment loans to other organizations to assist in the development of quality affordable housing. GMHC has provided $59 million in predevelopment loans to help create 22,000 units of affordable housing. • GMHC reaches out to existing homeowners to provide free construction advice through five conveniently located neighborhood HousingResource Centers™ in the metropolitan area. Homeowners can receive information on home improvement grants and loans, refinance information, remodeling advice, written scopes of work, and assistance through the construction process. These free services are available to any homeowner of any income.

3. What is going on in North Minneapolis? • High rates of foreclosure are creating unstable neighborhoods full of vacant and often boarded properties • A Hennepin County report indicates 65% of all foreclosures in North Minneapolis are investor owned rental properties • Documented mortgage fraud cases have contributed significantly to the number of vacant and foreclosed properties in North Minneapolis

4. Home Prosperity Fund and the Strategic Acquisition Fund • In 2007, the Family Housing Fund established the Home Prosperity Fund to deal with foreclosed properties and foreclosure issues. • The first $10 million of the fund came from MN Housing to the Family Housing Fund. • This $10 million was provided as a loan to GMHC to buy, redevelop, and resell foreclosed homes in the neighborhoods impacted by foreclosure in North Minneapolis. This $10 million has become known as the Strategic Acquisition Fund. • Gap Financing: GMHC obtained an additional $2 million in grants ($1 million from MN Housing and $1 million from the City of Minneapolis) to cover the “gap” between the cost to rehabilitate a home and the actual resale value • An additional $6 million in funding in the form of long-term loans, at reduced interest rates, has been committed to the Home Prosperity Fund from Wells Fargo ($2 Million), US Bank ($2 Million), TCF Bank ($1 Million), and Thrivant Financial ($1 Million)

5. The Acquisition Process of REO Properties • Majority of the REO properties acquired via MLS listings or public property auctions. • Neighborhood groups and residents often contact us and request specific properties be acquired if possible. • Over 20 properties purchased at auction, most recently 14 were purchased at an REDC Auction on May 31, 2008. • GMHC Activity Summary to Date Properties Evaluated: 230 Properties Purchased: 74 Properties Resold to Other Partners: 18

6. REO Pricing and Market Activity • Final purchase price usually 17-20 percent less than last MLS price. Properties were often overpriced when first listed. • Price Changes: Starting to see dramatic changes, for example: Single Family, 3BR, 1 Bath, 1940s 1 ½ Story Home: List Price Fall, 2007: $109,900 GMHC Offer, Fall, 2007: $81,200 GMHC Final Purchase Price, at Auction, May, 2008: $52,000 • More multiple offers on lower-valued properties. Investors? • Donations: Limited success, although servicers, especially Wells Fargo, US Bank, and TCF Bank are receptive. Actual investors appear to be less interested. Citigroup has expressed interest in a donation program. • Group Purchase: GMHC did obtain a group purchase from TCF Bank of 7 properties. • Challenge: Difficult to change the REO sales process . .

7. REO Property Condition • Even if a house isn’t boarded, the majority of homes in foreclosure we have seen need significant repair and improvements. Rarely does a house need just paint and refinished floors. • The majority of the homes have not seen significant reinvestment in the last 20 years and require new boilers/furnaces, asbestos removal, retaining wall repairs, windows, roofs, drain tile systems, etc. Crumbling Retaining Wall 70+ Year Old Boiler Asbestos Covered Furnace

8. Estimated Development Costs for Rehab Properties • 37 of the 74 properties acquired by GMHC will be for rehab and resale to owner occupants • Numbers of interest regarding rehabs properties: Average Acquisition Cost of Rehab Properties: $69,684 Average Construction Costs, w/10% Contingency: $71,372 Average Soft Costs (taxes, insurance, interest, etc): $26,177 Average Realtor Fees: $9,252 Average Development Costs w/Purchase Price: $175,566 Average Resale Price: $152,538 Average Development Gap for Rehabs: $23,029 • Note: Costs are figured on a 12 month holding period. All costs, except acquisition prices, are estimates. Of the properties put out to bid for renovation, the renovation costs have not exceed the estimated construction costs.

9. Down Payment Assistance ProgramsThe Minneapolis Advantage Program • The Minneapolis Advantage program for Owner Occupants • City of Minneapolis created program and GMHC administers • $10,000 in down payment assistance loans – 50 loans total • No income limitations • Forgiven after 5 years of owner occupancy • Must be in an eligible neighborhood (18 total) • Must be on a block with a foreclosed home • Applications became available April 28, 2008 • GMHC has distributed 515 applications • Applications were accepted starting May 5, 2008 • To date, 36 have been received, 8 have closed, 12 are reserved, 2 were not eligible, and 14 are pending additional information.

10. Down Payment Assistance ProgramsNeighborhood Based Programs • Three neighborhoods impacted by foreclosure (Folwell, Webber-Camden, and McKinley) are offering $4,000 down payment assistance forgivable loans to owner occupants for any house located in these neighborhoods. • The program dollars came from the Minneapolis-based Neighborhood Revitalization Program and the Family Housing Fund • Can be combined with Minneapolis Advantage Program • Both the Minneapolis Advantage Program and these neighborhood programs can be combined with the ADDI program • At least one homeowner has received all three down payment programs, for a total of $24,000 in assistance to purchase an REO property listed at $49,900.

11. Alternative Financing and Sustainable Home Ownership Program (SHOP) • GMHC created a separate division to provide mortgage products and mortgage counseling called Sustainable Home Ownership Program, or SHOP • Credit markets are tightening up – less options for buyers • FHA financing has become popular again • SHOP Contract for Deed for Prospective Buyers • Anticipate 2-5 years to clear up credit issues • Contract for Deed will be replaced by FHA or conventional financing when eligible • Give buyers a chance to own while improving credit • Financial Wellness Circles and Financial Counseling

12. Questions? Q&A?