HUD Seeks More NSP Funding, Announces ‘Recapture’ Process

Posted by Orb Staff on May 19, 2010 No Comments
Categories : Mortgage Servicing

The Obama administration plans to work with Congress to secure additional funding for the U.S. Department of Housing and Urban Development's Neighborhood Stabilization Program (NSP), HUD Secretary Shaun Donovan told reporters this week.

Donovan also announced that the administration will reallocate funds awarded through NSP1 that have not yet been committed to specific projects, in order to drive more funding to the hardest-hit communities. HUD has already awarded nearly $6 billion in NSP grants to help state and local governments respond to rising foreclosures and falling home values: $4 billion funded NSP1 through the Housing and Economic Recovery Act of 2008 (HERA), and an additional $2 billion funded NSP2 through the American Recovery and Reinvestment Act of 2009.

The initial NSP1 funds provided each state government with a "base allocation" of $19.6 million, without regard to varying degrees of need. Eighteen months later, HUD will recapture money from communities that have not yet committed NSP1 funding and reallocate it to city and county governments with very high foreclosure and/or vacancy rates and their jurisdiction, based on more recent data.

Additionally, the administration plans to work with Congress on new foreclosure counseling efforts to help homeowners facing foreclosure stay in their homes. HERA provided $150 million for housing counseling to connect homeowners with their mortgage servicer or lender. Additional funds in this area would broaden the administration's reach in its ongoing foreclosure prevention efforts, Donovan said.

‘Through HUD's recapture process, the administration is working to use the resources we have already received and build on the success and lessons from NSP1 and NSP2, ideally with additional funding for a third round, to really target the recovery in hard-hit areas directly," Donovan told reporters at a roundtable discussion in Washington, D.C. "The recapture process would provide additional resources to areas based on their foreclosure and delinquency rates, vacancy problems and unemployment. We also want to go a step further by providing funds to help homeowners avoid foreclosure."

The NSP was created to address the housing crisis, create jobs and grow local economies by providing communities with the resources to purchase and rehabilitate vacant homes. The NSP grants that HUD has awarded are helping state and local governments, as well as nonprofit developers, acquire land and property; demolish or rehabilitate abandoned properties; and/or offer down-payment and closing-cost assistance to low- to middle-income home buyers.

Grantees can also stabilize neighborhoods by creating ‘land banks’ to assemble, temporarily manage and dispose of foreclosed homes. So far, over 63,000 homes are projected to be impacted by NSP1, including acquisition, demolition, home-buyer assistance and new construction, and over 17,000 units have been completed, HUD says. For NSP2, applications were submitted for over $15 billion worth of projects nationwide, with only $2 billion available for funding.

HUD plans to explore with Congress a number of technical changes that could improve the flexibility and impact of the NSP program if a third round of funding can be secured. HUD will also work with Congress to help local grantees access more of the administrative capacity needed for effective implementation and, as part of this effort, to secure additional funds for technical assistance, as well.

Local communities would design and set their own program targets, but HUD would provide options for implementation. Grantees would, based on NSP1 performance, either be required to work with a subgrantee (i.e., an entity that is granted the legal obligations and authority to implement NSP on behalf of the grantee), sign a technical assistance agreement with HUD or work in a consortium with a high-capacity lead grantee.

In order to reallocate NSP1 funding, HUD would follow guidelines set forth in HERA, which says that states and units of general local government have no more than 18 months to dedicate NSP1 funds to specific projects.

HUD estimates that 70% of the $3.9 billion in NSP1 funds would be obligated by the 18-month deadline this fall, in September and October, for a recapture of approximately $1 billion. Following a 30-day review period, funds that grantees have not yet committed to specific projects will be reallocated either to new grantees or as additional funds for first-round grantees.

SOURCE: U.S. Department of Housing and Urban Development

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