States and Localities Publicize NSP Action Plan Proposals

Last Friday, November 15, state and local governments eligible to receive additional funding from the Neighborhood Stabilization Program were required to make their action plan proposals available for public comment. Across the nation, town hall meetings and forums are being held to open discussion on each jurisdiction's proposal.

These state and local plans are also available here through the Foreclosure Response project on HousingPolicy.org.

State and local governments have experienced difficulty in forming concrete action plans as they scramble to meet program deadlines. Moreover, each jurisdiction must create a plan that addresses their communities needs in order to make the greatest impact amidst the ongoing foreclosure crisis.

The Detroit Free Press reports that areas such as Detroit, MI are eager to use this funding to purchase foreclosed properties as well as to remove blighted and vacant houses. In Detroit, nearly 45,000 homes are abandoned and sit vacant.

Finalized versions of these proposals must be submitted in final form to the Department on Housing and Urban Development (HUD) by December 1st. The Neighborhood Stabilization Program was created under H.R. 3221, the "Housing and Economic Recovery Act of 2008."

"Out Loud" Podcast Focuses on Neighborhood Stabilization

The Center for Housing Policy, NHC's research affiliate, produces a monthly Podcast series called Out Loud, which plays tribute to noteworthy housing policies that take place at both state and local levels.

This month's Podcast discusses topics on neighborhood stabilization and features Danilo Pelletiere, research director at the National Low Income Housing Coalition, a DC-based non profit that is dedicated to solving America's affordable housing crisis.

During the Podcast, Mr. Pelletiere reminds us that the foreclosure crisis is not only affecting homeowners, but also single-family and multifamily properties occupied by renters.

To learn more, listen here.

The Power of Blogging in Explaining the Financial Crisis

With new news about the financial crisis breaking daily – and oftentimes even hourly – MIT management professor and former director of research at the International Monetary Fund, Simon Johnson, along with his friends Peter Boone and James Kwak, determined there was a need to create a new blog focused on “what happened to the economy and what we can do about it.”

The blog, called “Baseline Scenario,” was launched in September and also accompanies Johnson’s two-month-long Global Crisis lecture series – a noncredit course at MIT open to anyone interested in discussing developing economic events.

“There's a big thirst for listening to accessible discussions,” said Johnson.

The professor also noted that the idea behind the series was to get “[students] to get enthused” by posting on the blog.

“There are no stupid questions,” Johnson added. “Even I’m confused about some things – but the point is to get students engaged.”

In addition to his students, the blog - which is now available on our "Blogroll" - is written for anyone interested in the topic, serving as a valuable resource for all individuals who want to participate in the conversation about the economic crisis.

Read more here.

FDIC Announces New Plan to Prevent Foreclosure

The Federal Deposit Insurance Corporation (FDIC) presented a new loan modification program yesterday that would assist homeowners facing foreclosure. The proposal, which will be publicized later today, is aimed to assist borrowers who are at least two months behind in their mortgage payments.

Under this program, eligible homeowners would receive a loan modification that requires them to spend no more than 31% of their monthly income on housing expenses. Meanwhile, participating lenders are guaranteed that if the borrower falls behind on their payments post-modification, the federal government will cover up to half of the new losses, in most cases.

This FDIC plan has received praise from many lawmakers including Senate Banking, Housing and Urban Affairs Committee Chairman, Christopher Dodd (D-CT), who supported the proposal yesterday in a Full Committee Hearing. Those who support this plan believe it will endorse sustainable loan modifications and reach a wide realm of troubled homeowners at this critical time. The FDIC believes this program will be able to assist 2.2 million individuals with loan modifications and prevent 1.5 million foreclosures.

Meanwhile, opponents to this proposal do not wish to use part of the $700 billion given to the United States Department of Treasury from the Emergency Economic Stabilization Act (EESA) to fund this program. The FDIC estimates that if enacted, this program could cost the federal government $24.4 billion.

Earlier today, Interim Assistant Secretary for Financial Stability Neel Kashkari submitted written testimony for a hearing with the House Subcommittee on Domestic Policy, which suggested that Treasury Secretary Paulson has taken this plan under consideration.

Read more here.

New Streamlined Modification Program Targets Delinquent Homeowners

On November 11, Federal Housing Finance Agency (FHFA) Chairman Jim Lockhart announced a new program entitled the "Streamlined Modification Program, " which hopes to curb foreclosure by simplifying the process that determines whether homeowners are eligible to receive new loans.

The program will provide assistance through a variety of methods. Options include renegotiating mortgage payment loans to equal 38% of the homeowner's annual income, extending loan terms from 30 years to 40, reducing interest rates or delaying payments on the principal of the loan. The Streamlined Modification Program will take effect December 15, 2008.

In order to qualify for the program, borrowers must have a mortgage that is owned or guaranteed by Fannie Mae/Freddie Mac, presently occupy the home, be 90 days delinquent on their current mortgage payment, demonstrate financial hardship, have not declared bankruptcy and owe more than 90% of what the home is currently worth.

Although this new measure intends to keep homeowners in their homes by using an effective loan modification process that provides individuals with more affordable loans, it has also raised many eyebrows from federal leadership, policy makers and affordable housing advocates alike.

While the program is modeled after a similar loan modification measure taken by the Federal Deposit Insurance Corporation (FDIC) at IndyMac, FDIC Chairwoman Sheila Bair has publicly criticized the Streamlined Modification Program for focusing so narrowly on government sponsored enterprises Fannie Mae and Freddie Mac. Bair also questions the overall implementation of the program and currently advocates for a program that addresses foreclosure prevention through loan modification at a much larger scope.

The FDIC, alongside leadership in the Treasury Department and the Federal Reserve encouraged the federal government to aid "creditworthy borrowers" in a press release today.

Read more here.

Guest Blogger Frank S. Alexander: When Supply Exceeds Demand

Through most of our history the supply of land, and of housing in particular, has been just short of demand – with a constant stimulus for new construction yet pressure on prices widening affordability gaps. Communities throughout the country are now facing the reverse situation – the supply of properties suddenly exceeds the demand and fear seems to be the most common currency. In the face of fear perhaps the best response is to take a deep breath and learn from those who have faced this situation before.

The industrial cities of the rust belt and the core inner cities of many metropolitan areas have for decades now faced growing inventories of properties left vacant and abandoned. Unlike most other assets in our market economy, property is by definition unique – no two tracts of property are identical and it's value is always fixed in location. The consequence of this is that the costs of abandonment are never confined to the property itself, and instead spread to adjoining properties and neighborhoods like a contagion. Local governments see revenues decline and costs increase as more and more owners turn away from their properties.

When supply exceeds demand one possibility is to reduce supply by “banking” it. Over the past twenty-five years public land bank authorities have begun to acquire and control excess supplies of vacant, abandoned and tax delinquent properties. The most successful of these is in Genesee County (Flint), Michigan where the land bank moves quickly to acquire a thousand properties a year – demolishing some, stabilizing others, and, when possible, returning properties to the open market with a keen eye toward affordable housing. The Neighborhood Stabilization Grants (HR 3221) provide for the first time a key federal role in local government land banking of surplus properties. When supply exceeds demand in the property markets, the properties need to be converted from liabilities to assets and land banking can be a bridge to stable affordable housing.

Read more of Frank S. Alexander's work on land banking here.

Frank S. Alexander is a Law Professor at Emory University School of Law.

Deadline For NSP Action Plans Just Three Weeks Away

States and localities across the nation have until November 15 to publicize how they plan to use grants provided to them under the U.S. Department of Housing and Urban Development's Neighborhood Stabilization Program (NSP), which is authorized under Title III of the Housing and Economic Recovery Act of 2008, H.R. 3221. You can find the draft action plans for each state here on HousingPolicy.org as they become available.

State and local governments must submit these action plan proposals to HUD by December 1st, leaving little time for revisions to be made.The $3.92 billion program is designed to help communities where home values have fallen because of foreclosed and abandoned houses. While this program could potentially revitalize neighborhoods across America, state and local governments need to act quickly in order to meet their approaching deadlines.

The Washington Post recently detailed the potential use of these funds in Virginia, Maryland, the District and other hard-hit localities. While jurisdictions in Washington, DC will receive $22 million in NSP relief, these jurisdictions face difficult decisions on how to use the funds. Officials are considering whether to buy properties and resell or rent them to low-income residents, or help people hoping to buy the houses. Jurisdictions could also buy blocks of abandoned properties, demolish the homes and then hold onto the land until housing markets improve.

Because these decisions are so timely, the Center for Housing Policy, KnowledgePlex, the Local Initiatives Support Coalition and the Urban Institute have created the Foreclosure Response project to help states and localities determine how to use these funds. Visit HousingPolicy.org for more information.