NSP 1 Challenges, Success and Lessons Learned

Kate Blood

NSP Program Manager

WI Department of Commerce

Why did we decide to work in housing??

Given the housing bubble, mortgage crisis, escalating foreclosures – why do we love working in this field??

Why affordable housing…

Maybe because permanent housing and the concept of “home” is one of the most stabilizing factors in an individual’s life

Happiness Research

Global research on happiness has shown that the two most critical determinants of happiness were: Stable housing Adequate food

Between housing and food – housing was #1 And that’s why what we do is so critical

NSP in Wisconsin

Overview: Approximately $38,800,000 in NSP 1 funds

received by Wisconsin Department of Commerce

These funds were allocated across eight regions incorporating all areas of highest need in the state

NSP distribution of funds

WHEDA $5,807,600 Statewide Regional Allocations 27,093,611 Incentive Allocations 2,000,000 Administration 3,877,912

______________

TOTAL $38,779,123

NSP $ per activity (changes from 1/09 to 10/09)

Activity A– Financing Mechanisms - $5,807,600 Activity B – Acquisition/rehab/

resale – (up >$5m) 15,743,611

rental – (down $3m) 7,000,000

Activity C – Landbanking (down $1.25m) 750,000 Activity D – Demolition (down $600K) 1,400,000 Activity E – Redevelopment (down $800K) 4,200,000 Administration 3,877,912

NSP timeline – in theory

The Grantees per their contracts agreed to complete the housing activities according to the following schedule:

On or Before Activity

06/30/09 Finalize agreements with partnering organizations Establish record keeping system

09/30/09 Execute grant agreement & set-up housing activities (obligate funds)

12/31/09 Set-up Housing activities and begin to expend funds 03/31/10 Set-up Housing Activities and expend funds 06/30/10 Set-up Housing Activities and expend funds

08/15/10 All funds must be obligated by grantees by this date

09/30/10 Continue housing assistance activities

02/28/13 Complete all activities

03/15/13 Submit all requests for payment

NSP TimelineReality Check…

Running behind schedule Last of the 31 grantees were not in contract

until 10/9/09 Documents required to be able to obligate

NSP funds by grantees are not in for 12 of the 31 grantees (Tier 1 Environmental Review, MOU’s with partnering agencies, identification of HUD approved homebuyer counseling provider)

Progress to Date

Despite these delays, as of 10/30/09 Funds have been obligated for 77 housing

activities (all activity categories except for landbanking)

On average, 51% of the committed housing activities for the 2nd quarter ending 12/31/09 have had funds obligated

Progress – cont’d

As of end of 2nd quarter -9/30/09:

Over $2.5m has been obligated (includes admin dollars)

Of the funds for housing activities 72% has been for <50% CMI households

Challenges

The real estate market is changing daily:

More buyers are entering the market; Increased competition for foreclosed homes

from speculators, developers with no NSP restrictions (ex. 1% discount)

Competition can often close with no contingencies (ex. appraisal, HQS inspection) and quicker than NSP grantees can

Challenges – Cont’d

Changing Demographics Grantees are experiencing difficulty in finding

foreclosures in the census tracts that they’d identified almost 11 months ago as their highest risk/impact neighborhoods due to:

Shifting demographics of foreclosures (to higher tier)

Challenges – cont’d

Demographics of foreclosures has begun to change

Challenges – cont’d

Overall temporary decrease in number of foreclosures (due to rules requiring banks to consider more people for loan modifications) , and increase overall in home sales prices

Challenges – cont’d

1% discount from appraisal this 1% discount puts NSP grantees at a

disadvantage in the increasingly competitive demand for these foreclosed homes.

Appraisals in the last 6-9 months are reflecting the depreciated value of homes, making REO holders increasingly resistant to further discount the sales price for NSP bidders

Challenges – cont’d

Difficulty working with some lenders, REO holders REO’s reluctance to work with “Federal” funds REO’s unwillingness to allow contingencies, ex.

Appraisal requirement, HQS inspection Ex. We’ve had reports that a HUD contracted entity for

foreclosures won’t allow an appraisal prior to 1st (final) offer; their sales price is based on their appraisal, but may be more than 60 days old, won’t provide date of appraisal to prospective buyers

Extended time to close due to backlog on REO’s side

Challenges – cont’d

Lean budget for administration and activity related soft costs

NSP is capped at 10% by the HERA guidelines

Challenges – cont’d

Heightened regulatory and monitoring requirements per Federal emphasis on transparency

Some ambiguity in the guidelines for the NSP program given it’s hybrid combination of CDBG, HOME and NSP-specific guidelines

Challenges – cont’d

Tight timeline for obligation of funds August 15, 2010 all NSP funds must be

obligated to avoid recapture Quarterly housing activity benchmarks for

grantees must be met to avoid withholding of further funding

Challenges – cont’d

Examples of obstacles encountered by grantees in getting NSP $ obligated: Time delays in getting required documents to

obligate funds approved by Non-profit boards, City Counsel, Mayors, etc.

Stretching their NSP dollars to meet their contracted housing activities with rising sales prices

Summary

NSP is a one time opportunity to not only stem deterioration of neighborhoods by foreclosures, but to bring about catalytic change that can lead to revitalization

Along with the opportunity that this program provides, comes certain somewhat arduous requirements, documentation responsibilities and potential of OIG auditing.

Summary – cont’d

Suggestions: Balance the competing demands :

Seize the Day! when you find a good foreclosure opportunity, act boldly

AND: Proceed with Caution!

Documenting your adherence to the program requirements: 1% discount, URA notice to sellers, HUD approved home-buyer counseling provider, etc. Keep documentation of your policies (ex. Affordability

guidelines) and apply them consistently in all cases Call your HUD rep and State NSP grant administrator if you

have a question and document the question/answer

Summary – cont’d

And finally – when you’ve just lost a bid for a perfect

foreclosed home, or you’re frustrated at the regulatory requirements –

Remember You didn’t choose the affordable housing

because it was the “easy path”

Remember:

that you are one of a cadre of committed housing advocates, and

that you are helping to provide and secure the #1 ingredient of happiness:

stable housing