Neighborhood Stabilization Program (HUD)

$3.92 billion in grants to all states and certain local communities is contained in the recently passed Housing and Economic Recovery Act of 2008 (HERA).  The program is administered by the U.S. Department of Housing and Urban Development (HUD) to aid in purchase of foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes. The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.

Neighborhood Stabilization Program (NSP)

This one-time, emergency funding will enable states, cities, and their partners, including nonprofit organizations, to acquire and rehabilitate foreclosed homes for homeownership or rental.  This funding is administered by HUD and treated as Community Development Block Grant (CDBG) funds, though with differences from the normal CDBG provisions.

How Much Funding Is Available:

Of the $3.92 billion total, each state receives a minimum of $19.6 million (0.5%) of the funds.   Download the specific city and state allocations from HUD here.  

What Funds Can Be Used For:

• Establish financing mechanisms for purchase and redevelopment of foreclosed homes (including soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers)
• Purchase and rehabilitate properties that have been abandoned or foreclosed. Rehab may include improvements to increase energy efficiency or provide a renewable energy source
• Establish land banks for homes that have been foreclosed
• Demolish blighted structures
• Redevelop demolished or vacant properties

Funds can not be used for the following:

• Those activities ineligible under CDBG are ineligible under NSP (generally)
• Foreclosure prevention
• Demolition of non-blighted structures
• Purchase of properties not abandoned or foreclosed upon

NSP Targeting Requirements

The Neighborhood Stabilization Program has three specific targeting responsibilities for how funds may be used.

1. All funds must go towards programs that serve individuals and families whose income does not exceed 120 percent of area median income;
2. At least 25 percent of the funds must be used for the purchase and redevelopment of abandoned or foreclosed homes or residential properties that will be used to house individuals and families whose incomes are less than 50 percent of area median income; 
3. Jurisdictions that receive NSP funds must give priority emphasis to the areas of greatest need within their states, including those:
   • Areas with the greatest percentage of foreclosures
   • Areas with the highest percentage of homes financed by subprime mortgage related loans, and
   • Areas identified as likely to face a significant rise in the rate of home foreclosures

Data and How to identify areas of greatest need:

HUD offers data to help jurisdictions determine areas that meet the targeting requirements under the NSP. The following data are available through HUD:

• The FY 2008 50% and 120% HUD Area Income Limits for each grantee area

• Click through map for each state that provides an excel file with a:

  • List of Census Block Group (or part) in each state that does or does not qualify as an area of low-, moderate, and middle-income (LMMH) benefit. (Where more than 51% of the given area had incomes of less than 120% of Area Median Income in FY 2000)
  • Foreclosure and Abandonment Risk Score – this assessment developed by HUD provides a score for each Census Block Group from 0 to 10, where 0 indicates that HUD data suggest a very low risk and a 10 suggests a very high risk for foreclosure and abandonment.
  • Predicted 18 month underlying problem and foreclosure rate

HUD has encouraged state and local government to use this data as a place to start in considering how to target their funds.  It is important to note that the Foreclosure and Abandonment Risk Score and Predicted Foreclosure Rate do not give a picture of the actual level of problem in each neighborhood, but rather indicate there is a risk for problems.

To help states and communities make informed decisions about how to allocate and spend these funds, the Local Initiatives Support Corporation (LISC) has developed a dataset with foreclosure "needs scores" for Community Development Block Grant.  This resource is available through the Foreclosure Response project, a new collaboration of the Center for Housing Policy, KnowledgePlex, LISC, and the Urban Institute.

For more on the data used by HUD to determine state and local allocations click here.

For more on data and community data collection techniques click here.
 

How to Apply:

Each grantee receiving an allocation of NSP funds must submit an action plan substantial amendment to the local HUD field office by December 1, 2008. Citizen participation will be required under the NSP, but the citizen comment period for action plans will be limited to 15 days. Grantees must publish and post their proposed NSP Substantial Amendments to their websites for the required 15-day public comment period by November 15, 2008.

Grantees are to submit a paper NSP Substantial Amendment or a form under the Disaster Recovery Grant Reporting (DRGR) system.  The HUD NSP website contains a template of the suggested format for grantees, as well as a required checklist that must accompany the submission.

Grantees are encouraged to consider administrative capacity when developing their Action Plan. To address capacity concerns, jurisdictions are permitted to develop joint agreements.

Acceptable Joint Agreements include:

• Existing FY’08 joint agreements for regular CDBG apply to the NSP
• Local government NSP grantees may develop join agreements with its state to have state administer local program
• 2 or more local government grantees may develop a joint agreement. For this to work the jurisdictions;
  • must be contiguous, in same metro area
  • all participants must be eligible NSP grantees
  • one lead government administers programs for all

Jurisdictions are encouraged to consider a Joint Agreement where:

• Locality does not have capacity to run its own grants;
• Locality does not have expertise in administering NSP activities; and
• In order to achieve cost efficiency and economies of scale; and
• In order to holistically treat neighborhoods or problems that cross boundaries.

What Information Is Requested:

The Substantial Amendment requires information on:

• geographic areas of greatest need
• a narrative describing the uses of the funds
• definition of “blighted structure” in context of state or local law
• definition of “affordable rents”
• description of how the grantee will ensure continued affordability for NSP assisted housing
• description of housing rehabilitation standards that will apply to NSP assisted activities (at least 25% of funds must be used for housing individuals and families whose incomes do not exceed 50 percent of area median income)
• whether applicants intend to demolish or convert any low- and moderate-income dwelling units

Each activity to be funded needs to have:

• a national objective
• a projected start and end date
• specific project details
• a budget
• performance measures
• various legal certifications

Timeline

• November 15, 2008:   Grantees must publish and post their proposed NSP Substantial Amendments to their websites for the required 15-day public comment
• December 1, 2008:     Each grantee receiving an allocation of NSP funds must submit an action plan substantial amendment to the local HUD field office by December 1, 2008.
• February 13, 2009:     Cut off for any revisions, resubmissions of disapproved plans. Note disapproved plans are due to HUD no later than 45 days from first disapproval.
• Grantees must allocate NSP funds within 18 months of receipt.

For specific questions about your jurisdiction contact your local HUD Community Planning & Development Director.

For more detail on the NSP program visit the HUD NSP website.

Additional Resources:

Download a copy of the Neighborhood Stabilization Program: Questions and Answers for Housing Developers a resource compiled by the National Community Stabilization Trust (NCST) offers frequently asked questions and the answers from HUD.

Neighborhood Stabilization Program Session Materials on October 31 NeighborWorks hosted an information session on the NSP program featuring presentations from ICF International and a question and answer with HUD. 

Put Your Action Plan to Work: How to Use HUD’s Neighborhood Stabilization Program in Your Community at the next NeighborWorks Training Institute in Washington D.C. on December 11, 2008.  This one-day forum will convene industry experts to help nonprofits and government entities understand how to use the $3.92 billion in funding from the Housing and Economic Recovery Act of 2008. Hear how local practitioners have created partnerships to successfully implement community stabilization strategies to address vacant and foreclosed properties in their communities.

Save America’s Neighborhoods Campaign, a cross-industry taskforce of national organizations concerned about the foreclosure crisis’ impacts on communities, offers further information and background on the NSP program.

ICF International a professional services firm has set up a website to highlight current thinking, useful tools, and relevant background materials around implementing a Neighborhood Stabilization Program.