2008-10-02, 08:40

HUD's Neighborhood Stabilization Program

By: Multifamily Real Estate Industry Team
On September 26, 2008, the U.S. Department of Housing and Urban Development (HUD) announced an allocation of $3.92 billion to states, with particular concentration on hard-hit areas trying to react and counteract the effects of high foreclosures. The program is entitled the Neighborhood Stabilization Program (NSP). It is intended to aim emergency assistance to state and local governments whose communities have been especially hard hit by mortgage foreclosures. The funds will be used to acquire and redevelop foreclosed properties in neighborhoods with a high potential of becoming abandoned areas. HUD expects that requiring housing counseling for families receiving homebuyer assistance will prevent future foreclosures and hopes to ensure that homebuyers obtain mortgage loans from lenders who agree to comply with secure lending practices.

The funds will be supplied through the Community Development Block Grant Program (CDBG) under the Housing and Economic Recovery Act of 2008. This money will purchase, at a discount, foreclosed homes and demolish or rehabilitate the housing to respond to falling home values and increasing foreclosures. Alternatively, state and local governments may use the grants to offer assistance to low and moderate income homebuyers to use toward down payment and closing costs. Grantees can create "land banks" to assemble, temporarily manage, and dispose of vacant land with the hope that this will fortify neighborhoods and encourage re-use or redevelopment of urban property.

HUD plans to allocate funds by following the Congressional directive to target areas based on the number/percent of foreclosures, subprime mortgages and mortgage defaults and delinquencies based on data from government agencies and private sources. In order to assist communities in administering the NSP, HUD will issue specific rules that ensure, that the funds be put to use for specific activities within 18 months.

This new initiative is consistent with existing HUD revitalization programs such as the HOPE VI grant program, which is intended to assist in replacing obsolete and deteriorated public housing with new housing. While facially, the NSP is targeted at homeownership and not multifamily housing or mixed use development, by permitting governmental agencies to acquire tracts of land, the NSP does not seem to preclude use of this land for multifamily or mixed use development, especially if this development improves the overall community. In certain cases, development of multifamily and mixed use projects will be complementary to homeowners. And in general, once NSP is implemented and funded it can strengthen troubled communities and increase the value existing multifamily projects and make new multifamily and mixed use projects more feasible.

For more on HUD’s methodology for allocating CDBG Appropriation refer to the HUD release from September 26, 2008, which can be found at http://www.hud.gov/news/release.cfm?content=pr08-148.cfm

(This entry posted by Erica Harvey, a member of the Real Estate Development Group)

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