Local governments and other groups are taking action to solve the foreclosure crisis in their communities, according to an early review of HUD’s Neighborhood Stabilization Program money by Enterprise, a Columbia, Md.-based nonprofit housing organization.
In San Bernardino County, Calif., where the foreclosure rate is 9.6%, the county wants to work with its government and nonprofit counterparts to do bulk sales of foreclosed homes. In Phoenix, another formerly high-flying housing market, the city hopes to reduce its inventory of foreclosures and 7.1% foreclosure rate by offering financing assistance to creditworthy first-time buyers who purchase these now-distressed properties. And in Michigan, where the statewide foreclosure rate is 7.1%, the state hopes to assist families and neighborhoods alike by allowing financially troubled homeowners to sign their home over to a lender that will then sell the home to a nonprofit for lease back to the homeowner.
“Overall, we were impressed,” said Amanda Sheldon, a research and policy analyst at Enterprise and one of the authors of the report. “Many grantees are planning to use [Neighborhood Stabilization Program] funds for innovative and effective programs.”
Established by Congress in last summer’s housing rescue legislation, the Neighborhood Stabilization Program (NSP) is providing $3.9 billion in HUD funds to communities where rising rates of foreclosures are threatening to rip the fraying local fabric. Local governments and other affiliated groups had to submit their plans by Dec. 1, 2008; that money is now beginning to flow to local communities.
For its report, Enterprise looked at 87 plans, which included 22 states, 24 counties, and 41 cities, whose funding represents $2.3 million, or 58%, of the total money in the Neighborhood Stabilization Program. Overall, their plans for the money break down as follows:
Purchase and rehabilitation of properties: 56%
Home buyer finance: 21%
Property redevelopment: 13%
Blighted structure demolition: 6%; and
Land banks: 6%.
As noted above, localities are using the funds, issued through the Community Development Block Grant program, in a variety of ways, depending on their needs and challenges. While some cities and suburbs are focusing on getting owner-occupants into relatively new but now-vacated homes, others are concentrating on home buyer education, financial counseling, and bringing down the costs of purchasing by offering soft second-mortgages and other benefits to qualified purchasers.
Such efforts should help the housing market—and by extension, new-home builders—by cutting both the huge number of foreclosed homes on the market and slowly reducing the impact of these distressed assets on new-home prices, which have felt ongoing downward pressure due to lowball foreclosure sales.
Builders with remodeling and rehab expertise may benefit more directly from the NSP money; many localities are spending their funds on rehabbing single-family and multifamily properties.
So will those construction professionals with green experience. Nearly half (49.8%) of the plans reviewed by Enterprise mentioned energy efficiency (appliances, lighting); one-third (33.3%) mentioned a green building standard such as the NAHB Green Building Standard, LEED, or Enterprise’s own Green Communities Standard. What this means is that many cities, states, and towns are using green building and energy efficient criteria as they evaluate their local applicants for these funds and establish their own requirements.
For example, in Florida’s Orange County, homes or apartments that are purchased or rehabbed with NSP money will receive energy audits. North Carolina will prioritize grant requests that follow national green building programs such as LEED or the NAHB’s new standard.
And, in Columbus, Ohio, green living will be part of the package at NSP projects, which “will use energy-efficient and green materials/products,” according to the report. “Buyers of homes that were substantially renovated with [Columbus’s] NSP funds will receive a guide (compact disc and/or printed) for homeowners and renters that explains the intent, benefits, use and maintenance of green-building features and encourages additional green activities such as recycling, gardening, using healthy cleaning materials and alternate measures for pest control and purchasing green power.”
Some short-term impacts from the NSP funds should be evident fairly soon; grantees must spend the money within 18 months. But it is the longer-term returns on these investments that Enterprise and others will be watching in the months and years to come. Will foreclosure rates drop in communities that receive NSP money? Will the number of vacant homes drop in those neighborhoods?
And finally, when this nearly $4 billion in spending begin to solve the foreclosure crisis and stop home price declines? “I think that’s a question no one can answer right now,” Sheldon answered in a teleconference discussing Enterprise’s findings. “That’s like the question of ‘How long will this recession last?’ No one knows.”
Alison Rice is senior editor, online, at BUILDER magazine.
Neighborhood Stabilization Money: 5 Ways To Use The Dollars
State and local recipients who receive money from the $3.9 billion Neighborhood Stabilization Program can only spend the money for the uses noted below.
To establish financing mechanisms for the purchase and redevelopment of foreclosed homes.
To purchase and rehabilitate properties that have been abandoned or foreclosed upon.
To establish and operate land banks for homes and residential properties that have been fore¬closed upon.
To demolish blighted structures.
To redevelop demolished or vacant properties.
Source: “The Challenge of Foreclosed Properties,” Enterprise, 2009