December/January 2010
In this Issue
New Approach To Serving Vulnerable Families
Foreclosure Risk Lowered With Downpayment Assistance
Stabilizing Communities With NSP Dollars
Models of Sustainable Affordable Housing
In the next issue of ResearchWorks
Stabilizing Communities With NSP Dollars
Housing prices fell by 20 percent between 2008 and 2009 in Los Angeles, where the foreclosure rate is among the highest in the nation. Los Angeles is fighting the fallout by using $32 million in Neighborhood Stabilization Program (NSP) funds to provide homebuyers with purchase and rehabilitation assistance. Los Angeles is also using NSP dollars to underwrite the acquisition and rehabilitation of rental units with a 25 percent setaside for households at or below 50 percent of the area median income. Communities across the country that have been crippled by the economic crisis are receiving a similar NSP boost.
By allocating funds for the purchase and rehabilitation of foreclosed and vacant properties, this federally funded program administered by HUD aims to quickly mitigate the effects of foreclosure, create more affordable housing, and renew neighborhoods. In September 2008, HUD distributed $3.92 billion from the Housing and Economic Recovery Act by formula to 309 NSP1 grantees — 55 states and territories and 254 local governments — in areas hardest hit by foreclosures and abandoned properties. In a second round of funding (NSP2) in December 2009, $1.93 billion in American Recovery and Reinvestment Act dollars were allocated through competitive awards to states, local governments, and nonprofit housing developers.
To understand how communities have been planning
to counter destabilization, Enterprise Community Partners, in collaboration with NeighborWorks®
America, analyzed a sample of 87 state and local
NSP1 action plans.1 By reviewing these plans (from
22 states, 24 counties, and 41 cities), researchers
sought to identify priorities that local communities
selected for use in stabilizing their neighborhoods and
to aggregate the strategies, financing mechanisms, and
program models currently under adoption. Of the
planned and eligible activities for NSP1, the dollars
are targeted as follows:
- 56 percent will purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed on to sell, rent, or redevelop these homes and properties;
- 21 percent will establish financing mechanisms for the purchase and redevelopment of foreclosed homes and residential properties, including such mechanisms as soft-seconds (subsidized second mortgages that spur low- and moderate-income homeownership), loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers;
- 12.6 percent will redevelop demolished or vacant properties;
- 6 percent will demolish blighted structures; and
- 4.2 percent will establish land banks for homes whose mortgages have been foreclosed.
A comparison of how states, counties, and cities elect to spend their NSP dollars revealed some variation across jurisdictional types. Although purchasing and rehabilitation was the largest planned expenditure for all three types of localities, cities budgeted a larger proportion (63.5%) of their funds for this activity than did counties (55%) and states (44.4%). Establishing financing mechanisms for buying and redeveloping eligible properties was the second priority for all three jurisdictions. As to program use, 58.1 percent of funds were aimed at facilitating homeownership and 27.7 percent were devoted to rental housing initiatives.
An internal analysis of 300 plans that HUD’s Office of Policy Development and Research (PD&R) completed in February 2009 also provides insight into local priorities. The legislation requires that at least 25 percent of any NSP1 appropriations be used to purchase and redevelop abandoned or foreclosed residences to house individuals or families with incomes at or below 50 percent of the area median income. PD&R found that to meet this obligation, most grantees budgeted for a combination of activities that addressed the need for rental housing (74%), homeownership (53%), and permanent housing for the homeless (12%). When PD&R looked at the activities that these 300 grantees had included in their budgets, they found that most grantees (97%) planned for acquisition and rehabilitation along with other activities: demolition (66%), homeownership assistance (70%), land banking (35%), new housing construction (36%), and energy-efficiency improvements (12%).
Enterprise Community Partners found many promising ideas that localities plan to use in stabilizing their neighborhoods. The state of Michigan is preventing displacement of homeowners facing foreclosure with a program in which the owner deeds the home to the lender. In turn, the lender agrees to sell the property to a nonprofit who then leases the property back to the occupant for an affordable rent. This approach avoids foreclosure and allows the household to stay in place. A repurchase option remains available to the previous owner if mortgage eligibility requirements can be met later on. Columbus, Ohio requires its NSP subrecipients to implement waste and deconstruction management plans before starting renovations so as to reduce the burden on landfills and increase reuse of materials. Officials in Detroit thought of using NSP funds to make up the difference in financing gaps caused by a decline in the tax credit market that held up a number of LIHTC projects. Ontario, California set aside funds for a partnership that will create supportive housing for homeless people with disabilities.
This inquiry into the approaches planned for stabilizing local communities helps formulate a picture of what policymakers at federal, state, and local levels believe will be most productive. The picture will become more complete as PD&R collects NSP data each quarter from grant recipients. For example, Los Angeles reported the amount of project funds drawn down at the end of the second quarter (September 30, 2009) and the progress made in each planned activity. The city’s homeownership assistance program had helped five homebuyers make their purchases, and had purchased two vacant Real Estate Owned properties to rehabilitate and sell.
Policymakers are eager to learn how effective the priorities and activities set in motion by the enabling legislation have been in alleviating the housing crisis while strengthening communities. As results accrue with the quarterly reports filed by NSP recipients, PD&R will gather summary data on program beneficiaries; number of housing units; location of properties acquired and rehabilitated; dollars budgeted, obligated, and expended; and changes in occupancy, tenure, and property values in NSP neighborhoods.
More information, as well as links to the enabling legislation for NSP1 and NSP2, is available at www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/.
1 Amanda Sheldon, Phillip Bush, Aaron Kearsley and Anne Gass, "The Challenge of Foreclosed Properties: An Analysis of State and Local Plans to use the Neighborhood Stabilization Program," Enterprise Community Partners, Inc., 2009, Columbia, Maryland, www.enterprisecommunity.org/resources/publications_catalog/#housing.
