The HERA Neighborhood Stabilization Program: Converting Liabilities into Assets

1. The HERA Neighborhood Stabilization Program: Converting Liabilities into Assets Professor Frank S. Alexander Emory Law School  Frank S. Alexander 2008 Atlanta Neighborhood Development Partnership Atlanta Regional Commission Georgia Dept. of Community Affairs ULI Terwilliger Center for Workforce Housing October 8, 2008

2. I. The Context A. Housing and Economic Recovery Act of 2008, Pub. L. 110-298 (July 30, 2008) • Housing Finance Reform (FNMA, FHLMC, FHLBB) • Mortgage Broker Licensing Act • Hope for Homeowners Act ($300B in refinancings) • Tax Provisions (LIHTC, tax exempt bonds, tax credit for first time homebuyers) • “Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes” (§§ 2301-2305)

3. I. The Context B. Emergency Economic Stabilization Act 2008 (October 3, 2008) • From 3 pages to 460 pages in 10 days • From $700B to $850B in 10 days • $700 for Troubled Asset Relief Program • Mortgage Related Securities, including derivatives (commercial and residential), and “any other financial instrument” • Likely to have no impact on pending foreclosures or post-foreclosure REO

4. II. Neighborhood Stabilization Grants A. The Purposes • “Redevelopment of abandoned and foreclosed upon homes and residential properties” • “Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon” • Financing mechanisms (soft-seconds, shared-equity) • “Establish land banks” • “Demolish blighted structures” • Priority for areas with “greatest need”: home foreclosures; subprime loans; defaults and delinquency

5. II. Neighborhood Stabilization Grants B. The Allocations* Georgia DCA $77,085,125 DeKalb $18,545,013 Atlanta $12,316,082 Gwinnett $10,507,827 Fulton $10,333,410 Clayton $ 9,732,126 Cobb $ 6,889,134 Columbus-Muscogee $ 3,117,039 Augusta $ 2,437,064 Savannah $ 2,038,631

6. II. Neighborhood Stabilization Grants C. The Process • Consolidated Plan Amendments submitted by December 1, 2008 • 15 calendar days of public comment • Intergovernmental joint requests of two or more contiguous entitlement jurisdictions, or a community and the state. • Direct applications and subrecipient agreements • Data identifying geographic areas with “greatest need” with narrative on distribution and use and correlation to three variables determining greatest need.

7. II. Neighborhood Stabilization Grants D. Key Definitions & Concepts • “Abandoned” is when (i) foreclosure has commenced, (ii) no payments for 90 days, and (iii) vacant for 90 days. • “Current market appraised value” is appraisal within 60 days of offer. • “Foreclosed” is completion of foreclosure sale or deed in lieu of foreclosure. • REO purchases must be at a discount (as locally determined) (but 5% to 15% average range) • Funds must be obligated in 18 months, and reuse of program income by July 30, 2013.

8. II. Neighborhood Stabilization Grants E. Targeting • All funding “shall be used with respect to families at or below 120% of AMI” • 25% of funding is to house families at or below 50% of AMI • Emphasis on long-term affordability • General blight elimination is not sufficient • Financial leverage is potential key • Land Banks have special treatment for long term holding of properties (up to ten years).

9. III. The Challenges A. Which Properties? • Geographic areas of greatest need • Properties that are the greatest liabilities • Properties that are closest to re-occupancy • Neighborhoods that have been abandoned • Neighborhoods that are at risk of abandonment • Which properties are available from which REO asset manager? Consider carefully FHA properties.

10. III. The Challenges B. Who Has Capacity • Negotiating large scale residential property acquisitions at a discount • Managing rehabilitations • Managing rental • Managing homeownership programs • Managing demolitions and vacant properties • Intergovermental collaboration, and subrecipient expertise, are going to be critical

11. IV. Systemic Strategies 1. Know the properties. • By location: zip code, census tract, USPS vacancies, GIS • By condition: Occupancy, rehab, demolition 2. Know the REO owners and asset managers • Required foreclosure deed recordation • Vacant property registration ordinances 3. Enforce the Codes. • Clear housing and building substantive codes • Clear costs and penalties, secured by first lien.

12. IV. Systemic Strategies 4. Transfer ownership. • Negotiated acquisition, emphasizing leverage points • Foreclosure of public liens (taxes, nuisance abatement liens) 5. Reoccupy “C.O.” properties as soon as possible. • Convert to affordable homeownership • Short term leases at cost 6. Remove deteriorated structures as soon as possible. • Move quickly to secure • Move quickly to demolish

13. Local Government, NGO, CDC Foreclosed REO Land Bank Land Banking Conversion to Community Assets Purchase Agreement; Deed; Free and clear or Mortgage at 70% of FMV. Banking Agreement (Deposit & Withdrawal); Deed; Holding Costs Subordination Agreement. Transferees Deed; Public Purpose CCR Property Management

14. The HERA Neighborhood Stabilization Program: Converting Liabilities into Assets Professor Frank S. Alexander Emory Law School  Frank S. Alexander 2008 Atlanta Neighborhood Development Partnership Atlanta Regional Commission Georgia Dept. of Community Affairs ULI Terwilliger Center for Workforce Housing October 8, 2008