NEIGHBORHOOD STABILIZATION

PROGRAM

A Component of HUD’s Community Development

Block Grant (CDBG) Program

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.

Neighborhood Stabilization

• HUD established formulas in order to allocate funds to NSP grantees

• HUD’s 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

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.

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

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

Neighborhood Stabilization

• Not all regular CDBG entitlements received NSP funds

• Unfunded entitlements have to access NSP funds through its state’s NSP allocation

• States can award NSP funds to entitlements receiving their own NSP grant

• States are authorized to directly implement its activities

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

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.

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.

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.

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.

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.

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.

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.

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.

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”.

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.

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.

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.

Neighborhood Stabilization

• NSP Website: www.hud.gov\nsp

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