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 Allocations27,093,611 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 BeforeActivity 06/30/09Finalize agreements with partnering organizations Establish record keeping system 09/30/09Execute grant agreement & set-up housing activities (obligate funds) 12/31/09Set-up Housing activities and begin to expend funds 03/31/10Set-up Housing Activities and expend funds 06/30/10Set-up Housing Activities and expend funds 08/15/10All funds must be obligated by grantees by this date 09/30/10Continue housing assistance activities 02/28/13Complete all activities 03/15/13 Submit all requests for payment

NSP Timeline Reality 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 2 nd quarter ending 12/31/09 have had funds obligated

Progress – cont’d As of end of 2 nd 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 1 st (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