Soft Second Mortgage program revived, forgiving second mortgages
It's the news that many prospective New Orleans homeowners have been waiting for.
NEWORLEANS - On Thursday, Mayor Mitch Landrieu announced the return of the Soft Second Mortgage program, which the administration hopes will help more families become first-time homebuyers.
'Funding for the initiative comes from federal Community Development Block Grant dollars provided by the State of Louisiana for housing recovery from hurricanes Katrina and Rita,' said a statement from the mayor's office.
The program will offer as much as $65,000 to homebuyers, depending on the family's income. The $52 million initiative is also aimed at families of modest means who qualify for first mortgages.
'We know that promoting and incentivizing homeownership is key in revitalizing our neighborhoods across the city,' said Landrieu.
'This program will put Hurricane Katrina recovery dollars to use for their intended purpose helping the citizens of New Orleans rebuild their lives and neighborhoods post-Katrina. It will also reduce blight and stimulate the local economy. This has truly been a partnership between the public, private, faith-based and non-profit sectors. We're glad to get this program off the ground.'
As long as a family makes its house payment and lives in the home for 10 years, the second mortgage will be forgiven. The program was first introduced during the Ray Nagin administration.
More information from City of New Orleans news release: the term 'soft second' comes from the fact that the government is subsidizing money for potential homeowners through forgivable loans to purchase property and become first-time homebuyers.
The 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 will receive only the amount of soft second funding that is needed to close the affordability gap.
To be eligible for assistance, homebuyers must complete a pre-approved 12-hour homebuyer training course to prepare them to qualify for a mortgage and to become homeowners, sign a purchase contract for a home and obtain a commitment for a first mortgage.
The programs will 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.
To participate in the program, potential homebuyers can apply through a participating realtor, lender, or homebuyer training provider.
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.
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