Parker unveils new details about Philadelphia-backed mortgages
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Philadelphia is aiming to roll out the nation's first city-backed mortgage program by the end of the year.
Why it matters: Mayor Cherelle Parker's One Philly Mortgage program could make homeownership more affordable for first-time buyers who might otherwise struggle to qualify for traditional loans.
The big picture: Philly is one of the country's poorest cities and is in the midst of an affordable housing crisis, spurred by rising home prices and interest rates.
Driving the news: Parker revealed at Tuesday's Axios Live event that the city has secured Citizens Bank as a lender for the program and is in talks with other banks.
How it works: The program will offer first-time homebuyers a 30-year fixed-rate loan.
- 📉 Mortgage rates will be 1 percentage point below current market rates.
- 💰 Down payments will be capped at no more than 3%.
- ☂️ Private mortgage insurance will be waived. Borrowers typically pay private mortgage insurance until their loan covers 20% of the purchase price. Instead, the city will establish a reserve fund to cover lender losses if borrowers default.
- ✋ Eligibility: Households making up to 120% of the area median income (which is $100,000+ for a single individual), per the Inquirer.
Zoom in: The savings could really add up.
- For example: A homeowner is estimated to save $3,400 annually on a $200,000 home, per the Parker administration.
What they're saying: The initiative is meant to put "people on path to self-sufficiency," Parker told Axios' Emily Peck during the event.
Flashback: Parker teased the mortgage program last spring while pitching her $2 billion H.O.M.E. initiative to city lawmakers.
- The broader housing initiative aims to build, preserve or restore 30,000 homes across Philly.
- The plan draws on a mix of bonds; local, state and federal funding; and the value of existing city-owned land and property assets.
Worth noting: One Philly Mortgage is modeled after a Massachusetts program that has helped more than 22,000 low- and moderate-income buyers purchase homes since 1990.
- About half of those loans have gone to households of color, and roughly two-thirds of the homes purchased have been in historically underserved urban neighborhoods.
Reality check: Philly's high poverty rate and distressed housing stock could make it difficult to replicate Massachusetts' success, Kevin Gillen, a Drexel University economist and real estate finance expert, tells Axios.
- While the program could open the "credit spigot" for buyers to get cheaper mortgages, they could end up with homes requiring costly maintenance and repairs they can't afford.
"You don't want to increase homeownership in the short term if it just increases the foreclosure rate in the long term," Gillen says.