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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

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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


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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)


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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


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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


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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


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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.


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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.


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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).


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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.


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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


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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.


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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


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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


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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


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