The HERA Neighborhood Stabilization Program: Converting Liabilities into Assets

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The HERA Neighborhood Stabilization Program
Converting Liabilities into Assets
Professor Frank S. Alexander Emory Law School ?
Frank S. Alexander 2008
Atlanta Neighborhood Development Partnership
Atlanta Regional Commission Georgia Dept. of
Community Affairs ULI Terwilliger Center for
Workforce Housing October 8, 2008
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I. The Context
A. Housing and Economic Recovery Act of 2008,
Pub. L. 110-298 (July 30, 2008)

• Housing Finance Reform (FNMA, FHLMC, FHLBB)
• Mortgage Broker Licensing Act
• Hope for Homeowners Act (300B in refinancings)
• Tax Provisions (LIHTC, tax exempt bonds, tax
  credit for first time homebuyers)
• Emergency Assistance for the Redevelopment of
  Abandoned and Foreclosed Homes ( 2301-2305)

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I. The Context
B. Emergency Economic Stabilization Act 2008
(October 3, 2008)

• From 3 pages to 460 pages in 10 days
• From 700B to 850B in 10 days
• 700 for Troubled Asset Relief Program
• Mortgage Related Securities, including
  derivatives (commercial and residential), and
  any other financial instrument
• Likely to have no impact on pending foreclosures
  or post-foreclosure REO

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II. Neighborhood Stabilization Grants
A. The Purposes

• Redevelopment of abandoned and foreclosed upon
  homes and residential properties
• Purchase and rehabilitate homes and residential
  properties that have been abandoned or foreclosed
  upon
• Financing mechanisms (soft-seconds,
  shared-equity)
• Establish land banks
• Demolish blighted structures
• Priority for areas with greatest need home
  foreclosures subprime loans defaults and
  delinquency

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II. Neighborhood Stabilization Grants
B. The Allocations
Georgia DCA 77,085,125 DeKalb
18,545,013 Atlanta 12,316,082 Gwinnett
10,507,827 Fulton 10,333,410 Clayton
9,732,126 Cobb 6,889,134 Columbus-Muscogee
3,117,039 Augusta 2,437,064 Savannah
2,038,631
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II. Neighborhood Stabilization Grants
C. The Process

• Consolidated Plan Amendments submitted by
  December 1, 2008
• 15 calendar days of public comment
• Intergovernmental joint requests of two or more
  contiguous entitlement jurisdictions, or a
  community and the state.
• Direct applications and subrecipient agreements
• Data identifying geographic areas with greatest
  need with narrative on distribution and use and
  correlation to three variables determining
  greatest need.

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II. Neighborhood Stabilization Grants
D. Key Definitions Concepts

• Abandoned is when (i) foreclosure has
  commenced, (ii) no payments for 90 days, and
  (iii) vacant for 90 days.
• Current market appraised value is appraisal
  within 60 days of offer.
• Foreclosed is completion of foreclosure sale or
  deed in lieu of foreclosure.
• REO purchases must be at a discount (as locally
  determined) (but 5 to 15 average range)
• Funds must be obligated in 18 months, and reuse
  of program income by July 30, 2013.

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II. Neighborhood Stabilization Grants
E. Targeting

• All funding shall be used with respect to
  families at or below 120 of AMI
• 25 of funding is to house families at or below
  50 of AMI
• Emphasis on long-term affordability
• General blight elimination is not sufficient
• Financial leverage is potential key
• Land Banks have special treatment for long term
  holding of properties (up to ten years).

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III. The Challenges
A. Which Properties?

• Geographic areas of greatest need
• Properties that are the greatest liabilities
• Properties that are closest to re-occupancy
• Neighborhoods that have been abandoned
• Neighborhoods that are at risk of abandonment
• Which properties are available from which REO
  asset manager? Consider carefully FHA properties.

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III. The Challenges
B. Who Has Capacity

• Negotiating large scale residential property
  acquisitions at a discount
• Managing rehabilitations
• Managing rental
• Managing homeownership programs
• Managing demolitions and vacant properties
• Intergovermental collaboration, and subrecipient
  expertise, are going to be critical

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IV. Systemic Strategies
1. Know the properties.

• By location zip code, census tract, USPS
  vacancies, GIS
• By condition Occupancy, rehab, demolition

2. Know the REO owners and asset managers

• Required foreclosure deed recordation
• Vacant property registration ordinances

3. Enforce the Codes.

• Clear housing and building substantive codes
• Clear costs and penalties, secured by first lien.

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IV. Systemic Strategies
4. Transfer ownership.

• Negotiated acquisition, emphasizing leverage
  points
• Foreclosure of public liens (taxes, nuisance
  abatement liens)

5. Reoccupy C.O. properties as soon as possible.

• Convert to affordable homeownership
• Short term leases at cost

6. Remove deteriorated structures as soon as
possible.

• Move quickly to secure
• Move quickly to demolish

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Land Banking Conversion to Community Assets
Purchase Agreement Deed Free and clear or
Mortgage at 70 of FMV.
Banking Agreement (Deposit Withdrawal) Deed
Holding Costs
Subordination Agreement.
Transferees
Deed Public Purpose CCR
Property Management
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The HERA Neighborhood Stabilization Program
Converting Liabilities into Assets
Professor Frank S. Alexander Emory Law School ?
Frank S. Alexander 2008
Atlanta Neighborhood Development Partnership
Atlanta Regional Commission Georgia Dept. of
Community Affairs ULI Terwilliger Center for
Workforce Housing October 8, 2008