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The north St. Louis mortgage market is broken. Here's what some banks and nonprofits are doing.

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ST. LOUIS • Lenders made just 154 mortgages north of Delmar Boulevard last year, less than 4 percent of the nearly 3,900 home loans issued in the city of St. Louis.

It’s stark evidence, drawn from federal Home Mortgage Disclosure Act data, that the mortgage market in north St. Louis is broken.

“The valuation of a home is directly tied to whether or not a buyer can access a mortgage to buy your home,” said Glenn Burleigh, community engagement specialist for the Metropolitan St. Louis Equal Housing and Opportunity Council (EHOC). “What we have in north city and much of North (St. Louis) County and East St. Louis, the lack of access to credit in those areas is feeding this negative loop.”

As St. Louis works to reduce the more than 7,000 vacant buildings that dominate many of its neighborhoods, particularly on its largely African-American north side, the nonfunctioning housing market there looms as a major obstacle.

Slowly, momentum is growing behind an effort to find a solution by developing a mortgage product that would allow buyers to finance home purchases and repairs in areas where banks are skittish — or unable — to lend. Modeled after a similar program in Detroit, the hope is to spur sales that appraisers can use as comps so the atrophied market there can lurch to life.

But resuscitating the mortgage market in north St. Louis won’t be easy.

The area has struggled for decades, beset by massive population loss driven by suburbanization and racism that led to concentrated poverty and associated ills such as crime. The financial crisis a decade ago exacerbated the trend, causing a jump in foreclosures that whacked property values and drove up vacancy. Tighter lending standards after the crisis make it that much harder to access credit.

“Property values have never recovered from where they were prior to the economic recession,” Allan D. Ivie IV, president of corporate and community banking at Reliance Bank, said of lower-income areas of St. Louis. “The problem is magnified on the north side.”

Reliance is among a number of local banks working with nonprofits like EHOC and Justine Petersen to develop a loan program that would cover the gap between what appraisers say a home is worth and what it costs to buy and rehab it.

They’re calling it a “Greenlining Fund,” as in the opposite of redlining, the denial of financial and housing services to poor neighborhoods of color that occurred here and other cities. It’s modeled after the Detroit Home Mortgage Initiative, which that city established two years ago to try and revive its all-but-dead mortgage market.

The idea is the banks would make a loan up to the appraised value of the property. Because banks aren’t allowed to lend above the appraised value of a home, a nonprofit financial institution would make a second mortgage to cover the gap between what the appraisal says the home is worth and the actual cost to buy and rehab it.

The groups now are working to build a pool of money that can finance those second mortgages. Banks could fund that pool to get around mortgage regulations. It would also have protections so potential homebuyers won’t be stuck underwater — owing more than their house is worth — if they fall behind on payments.

The discussions now are focused on getting interested banks to agree on the structure of the product. Clayton Evans, a senior vice president at Reliance Bank leading the effort, said the hope is to begin offering the product by next year. He hopes it could fund up to 25 second mortgages the first year, lending up to an additional $60,000 to $75,000 to cover what he calls the appraisal gap in low-income neighborhoods.

“What’s stopping those interested parties from buying in St. Louis city is appraisals,” Evans said. “It’s not an issue of credit necessarily. It’s not an issue of income. It’s appraisals. … If we can re-establish the market, then we have a litany of potential homebuyers.”

Kyla Oudshoorn, a real estate agent with Platinum Realty who lists properties in some of the city’s lower-income areas, said she and other agents plan to meet with area appraisers soon to better understand their process, which she says stymies sales in some neighborhoods.

For instance, she referenced a recent appraisal for a sale in Dutchtown — a lower-income south side neighborhood. The appraiser jumped over an adjacent neighborhood in Holly Hills, a spot with higher sales values, down to Patch, another lower-income neighborhood, to find comparable sales, even though she said there are similar houses closer.

Houses literally just across Delmar Boulevard from the posh Central West End or Skinker-DeBaliviere neighborhoods aren’t appraised using comps from those adjacent locations. The Delmar Divide, Oudshoorn said, “is real.”

“It kinds of holds them hostage to their current economic situation if their neighborhoods can’t appraise higher,” Oudshoorn said. “We’ve got to figure out something with this appraisal thing. No wonder the homes are falling apart.”

Janelle O’Dea of the Post-Dispatch contributed to this report.

Tipping Point” is a series of special reports that examine critical challenges facing St. Louis neighborhoods.

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