NEIGHBORHOOD STABILIZATION PROGRAM

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NEIGHBORHOOD STABILIZATION PROGRAM

• A Component of HUDs Community Development
• Block Grant (CDBG) Program

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NEIGHBORHOOD STABILIZATION PROGRAM

• In July 2008, Congress enacted P.L.110-289, the
  Housing and Economic Recovery Act of 2008 (HERA).
• The Housing and Economic Recovery Act created
  the Neighborhood Stabilization Program (NSP),
  under which nationally, states, cities, and
  counties will receive a total of 3.92 billion to
  acquire, rehabilitate, demolish, and redevelop
  foreclosed and abandoned residential properties.

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Neighborhood Stabilization

• HUD established formulas in order to allocate
  funds to NSP grantees
• HUDs approach equates release of allocations
  with distribution of funds
• Applications were substantial amendments to
  existing annual CPD action plans
• Grantees had to submit amendments by December 1,
  2008

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Neighborhood Stabilization

• HERA directs that funds be treated as CDBG funds
  except
• As modified by HERA
• HUD may specify alternatives to CDBG requirements
  solely to expedite use of funds
• HUD may not alter fair housing,
  nondiscrimination, labor relations and
  environment.

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Neighborhood Stabilization

• Formula is based on number and percent by state
  and local government for
• Foreclosures
• Subprime loans
• Delinquencies
• Reallocation provision Failure to apply,
  unacceptable application, or poor performance

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Neighborhood Stabilization

• HERA imposes alternative low-mod benefit
  requirements
• All funds must benefit individuals at or below
  120 of area median income (AMI)
• 25 of all funds must be used to benefit
  individuals at or below 50 of AMI

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Neighborhood Stabilization

• Not all regular CDBG entitlements received NSP
  funds
• Unfunded entitlements have to access NSP funds
  through its states NSP allocation
• States can award NSP funds to entitlements
  receiving their own NSP grant
• States are authorized to directly implement its
  activities

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Neighborhood Stabilization

• Eligible uses 5 specified by HERA
• A. Financing mechanisms
• B. Acquisition and rehabilitation
• C. Land banking
• D. Demolition
• E. Redevelopment
• The NSP program allows up to 10 for grantee
  administrative cost

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Neighborhood Stabilization Property Types under
Each Eligible Use

• Grantees must limit their activities in any
  Eligible Use only to those property types
  specifically cited. When combining uses (e.g.
  Acquisition and Rehabilitation under B with
  Financing under A), the more restrictive
  classification applies. All activities should be
  understood to apply primarily to areas of
  greatest need or to constitute an improvement
  benefiting such areas as part of the overall NSP
  program.

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NSP ELIGIBLE USES

• (A) establish financing mechanisms for purchase
  and redevelopment of foreclosed upon homes and
  residential properties, including such mechanisms
  as soft-seconds, loan loss reserves, and
  shared-equity loans for low- moderate- and
  middle-income (LMMI) homebuyers.
• HUD takes the position that homes means any
  type of permanent residential dwelling unit, such
  as detached single family structures, townhouses,
  condominium units, multifamily rental apartments
  (covering the entire property), and manufactured
  homes where treated under state law as real
  estate (vs. personal property).
• Residential properties includes all of the
  above plus vacant land that is zoned for
  residential use.

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NSP ELIGIBLE USES

• (B) purchase and rehabilitate homes and
  residential properties that have been abandoned
  or foreclosed upon, in order to sell, rent, or
  redevelop such homes and properties.
• HUD defines homes as any type of permanent
  residential dwelling unit, including detached
  single family structures, townhouses, condominium
  units, multifamily rental apartments (covering
  the entire property), and manufactured homes
  where treated under state law as real estate (not
  as personal property).
• Residential properties includes all of the
  above plus vacant land that is zoned to permit
  residential uses.

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NSP ELIGIBLE USES

• (C) establish land banks for homes that have been
• foreclosed upon
• Land banking is limited to foreclosed upon
  homes as defined above. The absence of a
  reference in this section to residential
  properties means that vacant land may NOT be
  acquired through land banks. However, it is
  permissible for acquired homes acquired to be
  subsequently demolished and remain in the land
  bank.

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NSP ELIGIBLE USES

• (D) demolish blighted structures
• The NSP Notice defines blighted structures, as
  shown below. HUD has taken the position that any
  type of structure that is blighted may be
  demolished with NSP funds. This means that
  commercial, industrial or other types of
  structures may be demolished in addition to homes
  and residential structures.

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NSP ELIGIBLE USES

• (E) redevelop demolished or vacant properties
• This Eligible Use allows communities address the
  broadest range of property types. Because the
  legislation does not limit this use to homes
  and/or residential properties, HUD will permit
  grantees to acquire and redevelop ANY property
  type. This includes commercial or industrial
  property in addition to all types of residential
  property. However, it MUST be vacant. Vacant
  properties includes both vacant land and
  properties with vacant structures on the land.
• HUD expects that, unlike land banks, properties
  acquired and improved under Eligible Use E must
  proceed expeditiously to construction.

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NSP ELIGIBLE USES

• First, new housing construction (benefiting
  low-, moderate-, or middle-income LMMI persons)
  is permitted under Eligible Use E, and ONLY under
  Eligible Use E. This supersedes the limitation on
  new construction of housing in the CDBG program
  and is described in Sec. II H. 3.c of the NSP
  Notice.

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NSP ELIGIBLE USES

• Second, housing rehabilitation is currently not
  a CDBG-correlated eligible activity under
  Eligible Use E, but HUD is issuing an Errata
  notice that will allow it. The CDBG regulations
  on public facilities (24 CFR 570.201 (c)) do
  allow rehabilitation. Thus, a vacant structure
  acquired under Eligible Use E may be renovated
  into a public facility, such as a neighborhood
  center or homeless shelter immediately. After
  publication of the corrections, grantees will
  also be able to rehabilitate vacant structures
  for housing.

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NSP ELIGIBLE USES

• Third, as defined in the CDBG regulations,
  shelters for persons with special needs (such as
  homeless shelters and halfway houses) are public
  facilities. Renovation or new construction of
  such structures is eligible as a public facility.
  However, because they are not defined as
  permanent housing, they cannot count towards the
  requirement that 25 of the NSP funds be used to
  house individuals or families whose incomes do
  not exceed 50 of area median income.

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NSP ELIGIBLE USES

• Fourth, new housing may count toward the 25
  under 50 requirement ONLY if it takes place on
  abandoned or foreclosed upon homes or
  residential properties that is also vacant as
  required in Eligible Use E. Vacant property
  acquired under E that was NOT abandoned or
  foreclosed upon may serve as the site for new
  housing (or, after the Errata notice)
  rehabilitated housing however, it cannot count
  toward the 25 requirement because of this
  legislative directive.

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NSP Definitions

• Abandoned. A home is abandoned when mortgage or
  tax foreclosure proceedings have been initiated
  for that property, no mortgage or tax payments
  have been made by the property owner for at least
  90 days, AND the property has been vacant for at
  least 90 days.
• Blighted structure. A structure is blighted when
  it exhibits objectively determinable signs of
  deterioration sufficient to constitute a threat
  to human health, safety, and public welfare.
• Foreclosed. A property has been foreclosed
  upon at the point that, under state or local
  law, the mortgage or tax foreclosure is complete.
  HUD generally will not consider a foreclosure to
  be complete until after the title for the
  property has been transferred from the former
  homeowner under some type of foreclosure
  proceeding or transfer in lieu of foreclosure, in
  accordance with state or local law.

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Neighborhood Stabilization

• Homes acquired or redeveloped for use as primary
  residence must be sold at or below total cost of
  activities
• All properties to be purchased at discount to
  current market appraised value
• HERA establishes alternative program income
  requirements for grantees (up to 120 of AMI)
• Section 203 of HERA prohibits recipients from
  using eminent domain to fund any project using
  NSP funds.
• All other CDBG requirements are applicable to the
  NSP program.

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Neighborhood Stabilization

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