Talmer Bancorp in Troy, Mich., can't revitalize all of Detroit, but it can try to play a major role fixing one part of the city.
The $4.5 billion-asset company has entered into a partnership with the City of Detroit to offer $1 million to people looking to make the Marygrove College neighborhood their home.
Homeowners can receive a forgivable loan for buying a home from the Detroit Land Bank auction site. Under terms of the loan, borrowers can have up to $5,000 forgiven for each year they live in the home, capped at $25,000.
"Downtown and midtown are recovering nicely, but neighborhood revitalization is the key to a successful turnaround of Detroit," says David Provost, Talmer's chief executive.
Michigan banks often avoid Detroit, a trend that existed long before the city filed for bankruptcy protection in July. They skirt the area by going to the tonier Oakland County suburbs, or by outright avoiding southeastern Michigan.
Talmer entered Detroit last year through another bankruptcy. It bought several banks from Capitol Bancorp., and Michigan Commerce, Capitol's largest bank, had a Detroit branch. "We are trying to take a leadership role in helping the city," Provost says.
"We have a branch there now and are setting up loan-production offices in these neighborhoods," he adds. "There are a lot of funds that are available, but our hope is that this commitment is springboard for additional programs."
Detroit is huge, Provost says, and Talmer's greatest return on investment measured by revitalization, not revenue centers on propping up one neighborhood with long-term homeowners.
"Only homeowners, not flippers," Provost says of the fund's intended recipients.
The Marygrove College neighborhood has roughly 80 abandoned, says Detroit Mayor Mike Duggan. If fully utilized, Talmer's fund could address half of those foreclosures.
Fixing the Motor City neighborhood by neighborhood was part of the new mayor's campaign, and Duggan says Talmer reached out to him saying it wanted to help when the first neighborhood was selected. Marygrove College is one of the city's more moderately affected neighborhoods, Duggan says, and it was picked first for that reason.
"We are starting with the strongest so we can catch them now. It is easier to get people to move when there are two or three vacant homes on a block instead of six or seven," Duggan says. "You have people still walking away and getting the other houses filled is the most powerful way to get them to paint the house and stay."
Duggan says the city will likely start working on the next neighborhood in late May, adding that other banks are interested. "We are talking to a lot of banks about a lot of different options," he says.
Homes on the land bank site range in price from $25,000 to $50,000 and need about the same amount in improvements, Provost says. Talmer plans to offer traditional mortgages to cover the rest. Talmer could expand the fund if the first foray is successful, he says.
The fund also helps Talmer comply with requirements for the Community Redevelopment Act, but that wasn't the sole reason to do it. "We far exceed our CRA expectations already," Provost says.
The program is a smart approach, says Warren Traiger, a lawyer at BuckleySandler.
"They're not only going to get credit for having made loans for X amount, but they're going to get extra credit because the program... addresses a specific credit in the community in Detroit and is innovative and flexible," Traiger says. "You are maximizing the dollars you are putting out there."
Talmer began as First Michigan Bancorp, a 2007 de novo. Provost arrived in late 2009 and initially planned to focus on private banking. That changed quickly when it saw potential failed banks on the horizon and limited competition. Armed with $400 million from private equity investors like Wilbur Ross, Talmer has done several failed bank and distressed bank deals.
In February, it raised another $50 million of capital by going public. Existing shareholders also sold $190 million worth of their stock.
Jackie Stewart contributed to this story.