Request for Committee Action

2020-00680 - Revising Minneapolis Homes homeownership products to align with Minneapolis 2040 comprehensive plan

2020-01136 - Contracts with Build Wealth MN, Inc. and NeighborWorks Home Partners (Community Neighborhood Housing) for Homeownership Opportunity Minneapolis lending administration services

The City of Minneapolis has one of the highest homeownership disparity gaps in the country. The homeownership disparity gap is the percent difference between white households and BIPOC households who own their homes. When disaggregated, Black and Indigenous communities have the most significant racial disparity in homeownership. Additionally, Minneapolis was impacted by a high foreclosure rate, particularly in north Minneapolis and pockets of south Minneapolis. Minneapolis Homes products seek to combat racial disparities in homeownership by helping people access, create, and sustain affordable homeownership opportunities. The Homeownership Opportunity Minneapolis Program (HOM) provides down payment assistance to help residents access homeownership, complementing other Minneapolis Homes access products that provide homebuyer education, financial wellness counseling, and perpetually affordable stabilization investments.

The HOM program is available to income-qualified households that have completed financial counseling before closing on their home purchase. BuildWealth, MN, Inc. (“BuildWealth”) and Community Neighborhood Housing Services d/b/a NeighborWorks Home Partners (“NeighborWorks”) are the City’s current loan initiation entities selected through a request for proposals from August 2020. Since 2016, the HOM program serves an average of 55 households annually, 72% of which are BIPOC households. When CPED adopted the Salesforce platform to track program outcomes in 2022, we began to follow the rate of service to first-generation homebuyers, meaning homebuyers and homebuyer parents who have never owned a home or who owned a home and lost it to foreclosure. Approximately 71% of the households served since 2022 have been first-generation homebuyers.  

The City is part of a consortium that is seeking to encourage a more uniform adoption of down payment assistance best practices in the state, including the Minnesota Homeownership Center, NeighborWorks Home Partners, Hennepin County, Ramsey County, Minnesota Housing, Three Rivers Community Action, and the City of Saint Paul. These best practices focus on increasing investment in down payment resources, improving targeting of down payment resources, reducing the barriers to accessing down payment resources, and facilitating standardization and transparency for the use of down payment resources. The following are best practices that lenders, administrators, and providers should align with:

• Allow Subordination
• Reservation of Funds for Homebuyers
• Eligibility Requirements
• Minimum Amount of Assistance
• Homebuyer Education Requirements
• Repayment Requirements

When the HOM program started in 2016, the average mortgage rate was 4.3%, with the median sales price being $230,000. The market has changed since 2016, seeing interest rates increase by 3.0%, with current rates being 7.3% and median housing prices have increased by 37% to $315,000. Many of the participants in the best practices consortium have developed new down payment assistance products that the City is seeking to align with to ease the burden of layering multiple resources from different funding programs on a single homebuyer transaction.

Working with the regional partners and the changing market, City staff requests approval to make guideline changes to HOM, which will be called Minneapolis Homes: Access down payment assistance. The changes that City staff are recommending have the following focus: eligibility and the amount of the aid to expand access, eliminate barriers, and tie the amount of assistance to the market.

The staff recommended changes are below:

Eligibility Changes:

• • Limit to first-time homebuyer(s)
  • Homebuyer education and financial wellness counseling are required to be completed before execution of the purchase agreement
  • Lower the front-end ratio, or the minimum housing payment, for applicants from 20% to 15%
  • Expand eligible properties from 1-2 units to 1-4 unit
  • Explicitly allow Individual Tax Identification Number (ITIN) mortgages and no-interest mortgages
  • Reduce the occupancy requirement to 10-years

Assistance Changes:

• • Continue assistance for a 60% AMI and below tier originally funded with ARPA
  • Tie the amount of assistance provided by tier to the median county home value adjusted every three years:
    • 3% of the median Hennepin County home value for households between 61-80% AMI
    • 6% of the median Hennepin County home value for households below 60% AMI
  • Permit homebuyers to reserve funds for a renewable 90-day term with the program administrator

The adjustments recommended to the HOM program were posted for public comment for 45 days, and notice was provided to neighborhood organizations. Staff presented to the October 12 Housing Advisory Committee meeting and to the consortium of practitioners involved in the down payment assistance best practices.