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April 30, 2009
Congress Is Briefed on Plans to Fund Revitalization of Neighborhoods Hit by Foreclosures
by Robert Kropp
NSP funding requires communities to submit action plans detailing their spending, and report by
Enterprise Community Partners is the first published effort to study the data.
SocialFunds.com --
By late 2007, the effects of a weakened housing market and predatory subprime lending practices had
led to the beginning of a national debate on the growing crisis in foreclosures. The crisis
threatened not only homeowners faced with foreclosure, but also the communities that would be left
with high concentrations of foreclosed properties.
 "Vacant properties are like a cancer that
can take down whole communities," said Ali Solis, Senior Vice President and Public Policy and
Corporate Affairs Executive at Enterprise Community Partners. Enterprise is a
nonprofit that operates the Enterprise Community Loan Fund, a Community Development Financial
Institution (CDFI) that has loaned more than $725 million in low-income communities and helped
build or renovate 91,000 affordable homes nationwide. Concentrations of vacant properties can lead
to a host of ills, including decreased property values and sharp increases in crime rates.
Foreseeing the magnitude of the crisis—which according to conservative estimates would lead to
a national foreclosure rate of 200,000 properties per month—Enterprise partnered with an extensive
coalition of organizations to create Save America's
Neighborhoods, a campaign that successfully lobbied for $3.92 billion in emergency
stabilization funding included in the Housing and Economic Recovery Act of 2008.
The
Neighborhood Stabilization Program (NSP), a new federal program, was developed to provide funding
to localities in order to reduce the impacts of foreclosed and vacant properties on neighborhoods.
The funds were authorized to be used for financing mechanisms for the purchase and redevelopment of
foreclosed homes, the purchase and rehabilitation of abandoned and foreclosed properties, the
establishment of land banks for foreclosed homes and residential properties, the demolition of
blighted structures, and the redevelopment of demolished and vacant properties.
In order
to qualify for the funding, state and local governments were required to submit action plans to
detail how NSP funds would be used to address the foreclosure crisis and stabilize communities
affected by widespread foreclosures and vacancies. According to Amanda Sheldon, Research and Policy
Analyst at Enterprise, the action plans were written in relative isolation, with limited awareness
of how other fund recipients were proposing to use the funds.
Enterprise reviewed and
analyzed 87 of the 306 NSP action plans submitted to the Department of Housing and Urban
Development (HUD), and issued its findings in a report entitled The
Challenge of Foreclosed Properties. The report quantified the ways in which program intended to
use NSP funding, and found that 56% would pay for purchase and rehabilitation, 21% would provide
homebuyer financing, 13% would address redevelopment, 6% would pay for blighted structure
demolition, and 4% would fund land banks. HUD defines land banks as "governmental or
nongovernmental nonprofit entities that focus on the conversion of vacant, abandoned properties
into productive use."
In addition to providing data on how recipients intended to use NSP
funds, the Enterprise report also sought to identify effective strategies, financing mechanisms and
program models. Sheldon, who is a co-author of the report, said, "We wanted to share promising
approaches that we found in the 87 plans we studied."
Sheldon was impressed with the
overall quality of the action plans submitted. "Given that these were first-time action plans for a
new funding program, written with a strict deadline, we found that many of the strategies proposed
have a good likelihood of success." According to the report, promising approaches were identified
in the areas of acquisition and discount strategies, disposition strategies, geographic targeting,
green building and rehabilitation strategies, income targeting and long-term affordability,
leveraging NSP funds, and partnerships and management.
Among the promising innovative
approaches indentified in the report was the inclusion of green building and rehabilitation
principles in many of the action plans. "The funding encourages the use of green building
principles, but does not include a requirement that they be used," said Sheldon. "Nevertheless, we
found that 60% of the plans mentioned energy efficiency as a goal."
Leveraging of funds
also stood out as an effective strategy for the use of NSP funds. "It would be a mistake if
governments used the funds simply to buy a couple of houses," said Solis. "Blending public and
private resources through social investing and philanthropy stands a much better chance of
addressing the crisis."
"But even with leveraging, $4 billion in funding will hardly
make a dent in a rate of 200,000 foreclosures a month," Solas observed.
As part of the
American Recovery and Reinvestment Act (ARRA) signed into law this year, an additional $2.2 billion
was provided for a second round of funding for the NSP. Funding for the second round of NSP will be
allocated by competition. Included among the eligible entities for the second round of funding are
nonprofits or consortia of nonprofits that may partner with for-profit entities.
According
to the Enterprise report, identifying approaches that stand the best chance of becoming best
practices is essential to preparations for the second round of financing. Furthermore, the
long-term need for such financing will be more effectively supported by the data collected in the
report. At present, NSP is designed to provide only short-term funding to address the foreclosure
crisis.
"The report's breakdown by dollars of the five usages allowed by NSP for the first
round of funding is the first time that the action plans have been scrutinized in this way," said
Sheldon. Enterprise shared the findings of its report with 50 Congressional staff members on April
21.
"Staff members were there to be educated themselves, as well as to educate their
constituents," Sheldon said. The staff members were especially interested in the report's policy
recommendations, which include the restructuring or refinancing of mortgages to avoid foreclosure,
the expansion of safe harbors offered to servicers for loan modifications, and the adoption of
regulations for the NSP program that are clear, practical and user-friendly.
Representative Maxine Waters of California, who was instrumental in getting NSP funding
included in the stimulus packages, described the briefings as "an informative first look at how NSP
funds will be used by some municipalities around the country." She pointed out that Los Angeles,
which holds about one-fourth of all California foreclosures, used NSP funding to help develop a
walk-in homebuyer program under which eligible households will identify foreclosed single-family
homes to purchase as their primary residences.
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