Neighborhood Stabilization is the Goal of Foreclosure Purchases
The Neighborhood Stabilization Program (NSP) as passed by Congress in 2008 essentially amends the Community Development Block Grant (CDBG) program to provide additional funding and flexibility to communities to help alleviate the impact of the foreclosure crisis on communities. Abandoned homes quickly lead to neighborhood decline when there are more than one in a block. The program funds must be obligated (contracted for) within 18 months of their receipt, so for larger municipalities, counties, and states, that means it's a fast-track program.
The program asks recipients to use the funds in the areas of greatest need, which are defined as those with high foreclosure rates, high proportions of subprime mortgages, and likelihood of increased foreclosure rates in the near future. In legal-speak, this program is described in Title III of the Housing and Economic Recovery Act of 2008. I’m telling you this because sometimes our learning curve in community development is years, and this program has already started. More than 100 communities reportedly have signed up for the National Community Stabilization Trust, a major collaboration of large banks and community-oriented nonprofits. The Trust offers a First Look program to allow nonprofit housing developers advance notice of foreclosures that participating financial institutions are about to receive. Unlike the regular CDBG program, funds that are awarded to states may be used anywhere in the state where need is greatest, including in communities that receive their own CDBG funds as well. So some of these so-called entitlement communities, who receive CDBG funds without having to compete for them, may receive state NSP funds as well as their own. For those of you who are accustomed to participating in the CDBG hearings, that process was abbreviated to 15 days in 2008 for this program. However, if you want to be a watchdog, request the written plan for how your municipality, county, or state plans to use its neighborhood stabilization funds. That plan would be called a substantial amendment to the Consolidated Plan, if you want to show off. >> Back to Top Why This Program Is NeededProbably very few of you will need us to draw you a picture of why this money is important. When your neighborhood has several foreclosed and therefore probably abandoned homes, it can be a real blighting influence and cause your own property values to decline. The last thing lenders want to do is own residential real estate and have to pay to get the grass cut. And their maintenance is sporadic, to cast it in the best light. Plus, when the foreclosed properties reach a certain critical mass, the neighborhood begins to feel unsafe. Not enough lights in the evening, not enough activity on the street. It can be a swift spiral downward if quite a high proportion of homes are in foreclosure, which could happen due to subprime financing schemes offered by particular builders. Permitted Uses of the FundsHomes that have been foreclosed upon can be purchased and then rehabbed, remodeled, demolished, re-sold, or rented under the wide leeway granted under the neighborhood stabilization program. Some recipients are enlisting nonprofit corporations as partners in recycling the buildings to good use. Unlike almost all other government housing programs, there is no requirement that a housing unit that is demolished be replaced. In fact, demolished homes may be re-purposed into parks or other non-residential uses, including commercial or industrial, on the resulting land. The purchasers or renters of the acquired homes should have incomes at less than 120% of the area’s median income. Median, as you might remember from school, is the middle value in the entire list of incomes from top to bottom. The federal Department of Housing and Urban Development (HUD) determines a median income for various household sizes in each community that receives CDBG funds. Purchasers of homes acquired through NSP must undergo at least eight hours of housing counseling, lest they themselves be ultimately unable to afford the home. Governments are not allowed to re-sell the homes at a profit, but they may recover all their costs. Governments might purchase homes below market value from lenders but only if the lender agrees. And at least a fourth of the money for purchase and redevelopment of neighborhood stabilization program homes should benefit those who earn less than 50% of the area’s median income. The government is urged to be mindful of its usual relocation requirements under the block grant program, which would include paying moving costs. Land banking of foreclosed properties also is allowed, with a ten-year maximum period. In other words, the government may decide to “buy and hold” for as long as ten years. Public facilities, such as street resurfacing or other needed repairs, also are allowable uses of the funding. This might allow some areas that were marginal before the foreclosure crisis hit to become more marketable. >> Back to Top The Opportunity for NeighborhoodsYour government has already decided in general how it will spend its funds. However, if you see a pressing need at a particular address, it’s probably not too late to urge that a particular home or block receive attention. Each government will play within the rules slightly differently, so try to learn your government’s philosophy about how foreclosed properties to purchase are being determined. Then make your best pitch. With great administration, the NSP funds can blunt the neighborhood blighting effects of the foreclosure crisis. I hope your local government is being wise, very wise, in how it spends this money. The temptation is to spend it as fast as possible, without being too thoughtful, when the money disappears if not allocated within 18 months. But with your watchful eyes and a helpful rather than hostile attitude, you could improve the likelihood that your local government spends this federal tax money for its intended purpose, which is neighborhood stabilization. >> Back to Top Return from Neighborhood Stabilization to Housing
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