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St. Paul helps middle class with low-interest mortgages.

St. Paul, Minn. has launched the nation's first low-interest-rate middle-income housing loan program, in an effort to stem middle-class suburban flight and preserve housing stock.

Approximately 500 qualifying households are expected to participate in the new $25 million Middle Income Housing Fund, which will enable them to: buy and, possibly, renovate, a first home; trade up to a more expensive St. Paul home and, possibly, refurbish it; renovate an existing city home; or refinance and substantially refurbish an existing home.

Monies will be apportioned as follows: $12.5 million for homebuying loans, $4 million for homebuing/home improvement loans, $3.5 million for refinancing/home improvement loans and $5 million for basic home improvement loans.

Applications for the homebuying, homebuying/home improvement and refinancing/home improvement loans were available on a first-come, first-served basis when the program was unveiled February 3.

As of February 26, the city had received more than 4,500 inquiries from prospective program participants--3,000 during the week after its announcement alone--and, to date, nearly all of the initial $20 million appropriated for these three program components has been allocated.

Application for the remaining $5 million set aside for basic renovation loans will be taken beginning April 1.

"With all the talk of economic relief for the middle class, we've acted and put in place a program that will boost their living standards in St. Paul," said Mayor James Scheibel. "The city benefits, too, because we're supporting economic diversity, which is the strength of our neighborhoods."

Scheibel said urban middle-income families around the country are enduring economic pressures that prevent them from making home improvements and prompt them to consider moving to the suburbs. "We need the middle class in our cities," he said. "The Middle Income Housing Fund will retain and attract them. And there's no reason this program cannot be duplicated by other U.S. cities."

The mayor appeared on the NBC Today show to discuss the program on the morning of its inauguration, and has been approached by officials of numerous other cities regarding implementing similar programs in their communities.

St. Paul created the fund by refinancing an old tax-exempt bond issue and issuing a new series of taxable and tax-exempt bonds. "Other cities have the opportunity to duplicate our financing and our housing fund," said Robert Sprague, director of the city's Department of Planning and Economic Development, which is administering the program.

"Low-interest, middle-income housing programs have been long overlooked by governments and foundations because of their attention to low-income, first-time buyer programs. The Schiebel administration recognizes that St. Paul must maintain and bolster its economic diversity."

About half of the $25 million fund will be allocated to homes in special areas of the city called "spotlight neighborhoods," where housing is generally in good condition but in need of attention. Much of the city's housing stock was built before 1945, and many homes could use a new roof or gutters, a modern kitchen or bath, Scheibel said. "But too many middle income homeowners have postponed those repairs and improvements because the interest rates for home improvement loans have been unaffordable," he said.

Each of the program options carries a fixed interest rate of 7.55 percent, which is approximately 2 to 4 percentage points below that of conventional home improvement loans and about 0.75 points less than that of conventional mortgage loans. The homebuying, homebuying/home improvement and refinancing/home improvement loans are for a 30-year term and have 2.25 discount points; basic home improvement loans have a 15-year term and no points.

The maximum purchase price permitted for an existing home is $165,915, and for a newly constructed one, $180,495.

The program has no minimum income requirement for participants, except first-time homebuyers, who must show an annual income of at least $48,000. All borrowers must be able to afford the loan, however, and cannot have an adjusted gross income of more than $84,000.

The $48,000 minimum income requirement for first-time homebuyers was imposed because households with lower incomes are eligible for other, existing programs.

Low-to-moderate-income first-time homebuyers who do not meet the $48,000 requirement for the Middle Income Housing Fund may qualify for a 7.88 percent loan through the Minneapolis/St. Paul Housing Program. About $23 million is currently available.

During the 1980's, St. Paul helped nearly 3,000 low-to-moderate income families purchase a first home. About $170 million in mortgage loans was provided through nine homebuying and homebuying/home improvement loan programs.

For more information, contact Mayor James Scheibel, 347 City Hall, St. Paul, Minn. 55102; (612) 298-4323.
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Title Annotation:City Ideas That Work
Author:Turner, Laura
Publication:Nation's Cities Weekly
Date:Apr 6, 1992
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