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NSP 1 Challenges, Success and Lessons Learned

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….

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NSP 1 Challenges, Success and Lessons Learned

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  1. NSP 1 Challenges, Success and Lessons Learned Kate Blood NSP Program Manager WI Department of Commerce

  2. Why did we decide to work in housing?? • Given the housing bubble, mortgage crisis, escalating foreclosures – why do we love working in this field??

  3. Why affordable housing… • Maybe because permanent housing and the concept of “home” is one of the most stabilizing factors in an individual’s life

  4. 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

  5. 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

  6. 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

  7. 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

  8. NSP timeline – in theory • The Grantees per their contracts agreed to complete the housing activities according to the following schedule: • On or BeforeActivity • 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

  9. 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)

  10. 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

  11. 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

  12. 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

  13. 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)

  14. Challenges – cont’d • Demographics of foreclosures has begun to change

  15. 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

  16. 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

  17. 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

  18. Challenges – cont’d • Lean budget for administration and activity related soft costs • NSP is capped at 10% by the HERA guidelines

  19. 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

  20. 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

  21. 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

  22. 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.

  23. 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

  24. 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”

  25. 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

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