This could be a game changer for Detroit housing

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Shuttered and repossessed homes line the streets of a middle-class neighborhood on the east side of Detroit.

Plus, if you’re a Detroit homeowner and know you can’t get a higher appraisal for your home improvements, there’s little incentive to invest and upgrade, which only adds to the city’s blight problem and declining population. The upshot is a “vicious cycle” of unprofitable rehabilitation and little incentive to invest in property, according to a new update from the Washington, D.C.-based Urban Institute that focuses on economic and policy research.

“In Detroit, the appraisal problems are so acute,” said Laurie Goodman, director of the Urban Institute’s Housing Finance Policy Center.

Read MoreSome Americans can’t afford to buy homes in their hometown

To offer a sense of the city’s struggles, consider that there were only about 500 mortgages in 2015 in Detroit, Goodman said.

Now a new program is expanding and hoping to gain more traction by targeting Detroit’s appraisal gap through the use of second mortgages.

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