Transcript The Wells We Did Not Dig

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
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)
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
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
II. Neighborhood Stabilization Grants
B. The Allocations*
Georgia DCA
DeKalb
Atlanta
Gwinnett
Fulton
Clayton
Cobb
Columbus-Muscogee
Augusta
Savannah
$77,085,125
$18,545,013
$12,316,082
$10,507,827
$10,333,410
$ 9,732,126
$ 6,889,134
$ 3,117,039
$ 2,437,064
$ 2,038,631
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.
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.
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).
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.
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
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.
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
Land Banking Conversion to Community Assets
Foreclosed REO
Subordination
Agreement.
Land Bank
Purchase Agreement;
Deed; Free and clear or
Mortgage at 70% of FMV.
Local Government,
NGO, CDC
Banking Agreement
(Deposit & Withdrawal);
Deed; Holding Costs
Deed; Public Purpose
CCR
Transferees
Property Management
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