Targeting NSP Funds

1. Targeting NSP Funds Todd Richardson HUD Office of Policy Development and Research

2. Overview • Targeting Requirements in NSP • HUD’s NSP Allocation Formula • Statewide allocation • Within-state allocations • Local NSP Targeting • Other Resources

3. Overview (2) • WWW.HUD.GOV/NSP • HUD’s Formula Methodology • NSP Grantee Data Resources • http://www.huduser.org/publications/commdevl/nsp.html

4. Targeting Requirements - HUD • “For emergency assistance with redeveloping abandoned and foreclosed homes” to “States and units of general local government with the greatest need, as such need is determined in the discretion of the Secretary based on • the number and percentage of home foreclosures in each State or unit of general local government; • the number and percentage of homes financed by a subprime mortgage related loan in each State or unit of general local government; and • the number and percentage of homes in default or delinquency in each State or unit of general local government.” (2301(b)(3))

5. Targeting Requirements - Local • The statute also provides direction to grantees that they should give priority emphasis in targeting the funds that they receive to “those metropolitan areas, metropolitan cities, urban areas, rural areas, low- and moderate-income areas, and other areas with the greatest need, including those-- • with the greatest percentage of home foreclosures; • with the highest percentage of homes financed by a subprime mortgage related loan; and • identified by the State or unit of general local government as likely to face a significant rise in the rate of home foreclosures.” (2301(c)(2))

6. Two Questions • Why does the total amount allocated to Florida exceed the total amount allocated to California? • Why do some communities with tremendous foreclosure problems not get direct allocations?

7. Statewide Allocation • Evaluated multiple data sets for information on foreclosures, subprime loans, defaults/delinquencies • Good news – generally, high rate of foreclosure related problems in one data set equaled similarly high rate of foreclosures in other data sets. • Bad news – the data sets were not a perfect match; none had 100% coverage, with varying levels of state and regional coverage. • Most complete data set for all variables required by statute was Mortgage Bankers Association National Delinquency Survey

8. Statewide Allocation (2) • MBA National Delinquency Survey Data • Statewide data only • Only reflects 70% of active mortgages in US, so HUD adjusts its mortgage counts to prevent potential bias due to coverage problems by adjusting counts of mortgages with Census American Community Survey (ACS) and Federal Reserve Home Mortgage Disclosure Act (HMDA) data. • USPS Vacancy Data in HMDA High Cost Census Tracts • Calculate a measure of “abandonment risk”

9. Statewide Allocation (3)

10. Statewide Allocation (4)

11. Statewide Allocation (5)

12. Statewide Allocation (6)

13. Within State Allocations (1) • Universe of eligible grantees we calculated grants for are the 1,201 cities, counties, and “nonentitlement” state balances that got funded under the CDBG program in 2008. Statute directed us to allocate funds to communities as defined under Section 102 of the CDBG statute. • State governments all funded $19.6 million “off the top” of the statewide allocation. • Needs based allocation made from remaining dollars, with a minimum grant amount of $2 million required to get a direct grant.

14. Within State Allocations (2) • Public Data Reflecting Most of the Underlying Variance Between State Foreclosure Rates • Falling home prices from the Office of Federal Housing Enterprise Oversight (OFHEO.GOV) as of June 2008 compared to 2000 to 2008 peak. • Home Mortgage Disclosure Act data on High Cost Loans from the Federal Reserve (FFIEC.GOV) for 2004 to 2006. • Local Area Unemployment Rate data from the Bureau of Labor Statistics (BLS.GOV) as of June 2008.

15. Within State Allocations (3) Model 18 Month Foreclosure Rate = -2.211 - (0.131 * Percent decline in home value) + (0.152 * Pct of loans high cost) + (0.392 * Pct unemployed in place or county) Number foreclosures = model foreclosure rate * estimated number mortgages in jurisdiction (based on HMDA and ACS data) With a pro-rata adjustment to match aggregate of model number of foreclosures and mortgages to statewide numbers.

16. Within State Allocations (4) • The needs based sub-allocation formula is: (Statewide allocation - $19,600,000) * Local model number foreclosure starts * Statewide total number of foreclosure starts Local vacancy rate in tracts with high rate high cost loans Statewide vacancy rate in tracts with high rate high cost loans Pro-Rata Adjustment *

17. Why no funding for Merced City? • Merced City is an entitlement • Estimated 12.2% foreclosure start rate (much higher than state average of 6.7%) • But, relatively small number of foreclosures relative to state total, 1,260 estimated foreclosure starts = 0.3% of all foreclosures in state. • And only 0.12% of its addresses were both vacant and in tracts with high rates of high cost loans (compared to a state average of 0.23%). • Result was a grant of $1.2 million. Less than the $2 million minimum grant threshold so rolled into state grant.

18. Why no funding for Merced County? • Merced County is NOT an entitlement under the regular CDBG program. Thus a grant was not calculated. • Had a grant been calculated, it certainly would have been well above $2 million. • Excluding Merced City, it had 13% foreclosure start rate over the past 18 months and represented approximately 1.1 percent of all the foreclosure starts in California. It also showed the balance of the county having a vacancy rate in tracts with high cost loans nearly 3 times higher than the state average.

19. Local NSP Targeting • All funds must serve households less than 120 Percent of Area Median Income • You can meet this requirement by targeting funds to neighborhoods where more than 51% of persons are less than 120 percent of Area Median Income. Block Groups meeting this requirement are posted on the web. • 25% of funds must go to serve individuals or households less than 50 percent of Area Median Income • Area benefit DOES NOT APPLY for this group. You can only meet this requirement by providing direct assistance to a person or household with income less than 50 of Area Median Income. • Must target to greatest needs due to foreclosure crisis.

20. Local NSP Targeting (2) • Get the biggest bang for your buck. • Establish goals • Identify neighborhoods with a problem • HUD’s “predicted risk” data on HUD website (on same file with area benefit information) • Local data on bank and tax foreclosures • Local data to show if a home is vacant, such as water utility data • Develop a Strategy for Immediate Impact • Use flexibility under land banking activity to maintain abandoned properties you have not yet acquired (legal authority to maintain properties must be local, but NSP funds can be used to pay for the maintenance under certain circumstances) • Prioritize neighborhoods for different uses of funds • Preservation neighborhoods – acquire and resell • Opportunities for mixed income affordable housing – acquire and rent • Shrinking neighborhoods – acquire or swap and demolish

21. Other Resources • HUD.GOV • HUDUSER.ORG • http://www.newyorkfed.org/mortgagemaps/ • LISC.ORG • Enterprise Community Partners (enterprisecommunity.org) • National Vacant Properties Campaign (vacantproperties.org) • KnowledgePlex.org / DataPlace.org