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Neighborhood Stabilization Program (NSP) Strategies

The centerpiece of funding for many stabilization plans is the federal Neighborhood Stabilization Program (NSP). 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.

Overview

As of July 23, 2010, there are three rounds of Neighborhood Stabilization Program funding: NSP1, a term that references the NSP funds authorized under Division B, Title III of the Housing and Economic Recovery Act (HERA) of 2008, provided grants to all states and selected local governments on a formula basis;  NSP2, a term that references the NSP funds authorized under the American Recovery and Reinvestment Act (ARRA) of 2009, provided grants to states, local governments, nonprofits and consortia of entities on a competitive basis; and NSP3, authorized under the Wall Street Reform and Consumer Protection Act, will provide funds on a formula basis to states and selected local governments.

 AT A GLANCE:  NSP 1, 2 and 3

    NSP1   NSP2   NSP3
             
Year   Act passed in 2008 (Division B, Title III of the Housing and Economic Recovery Act [HERA] of 2008)   Announced and applications due in 2009 (Title XII of Division A of the American Recovery and Reinvestment Act of 2009, [the Recovery Act]. Awards announced 2010.   Passed July 2010 (Dodd-Frank Wall Street Reform and Consumer Protection Act).
             
Amount   $3.92 billion   $2 billion ($50 million set aside for technical assistance)   $1 billion (up to 2% set aside for technical assistance)
             
Methodology of Awards   HUD provided grants to all states and selected local governments on a formula basis.   Competitive application process open to local governments and nonprofits; collaborations were encouraged and could include private sector partners. Grantees were selected on the basis of foreclosure needs in their selected target areas, recent past experience, program design and compliance with NSP2 rules.   Distributes funds by the formula allocation used for NSP1.
             
Eligible Uses   NSP funds may be used for activities which include, but are not limited to:
  • Establish financing mechanisms for purchase and redevelopment of foreclosed homes and residential properties.
  • Purchase and rehabilitate homes and residential properties abandoned or foreclosed.
  • Establish land banks for foreclosed homes.
  • Demolish blighted structures.
  • Redevelop demolished or vacant properties
  Key Changes:
  • Minimum purchase discount changed from 5% to 1% for individual properties, and from 15% to 5% average for the overall portfolio.
  • In April, 2010, HUD changed the definitions of “foreclosed” and “abandoned” for the purposes of identifying eligible properties for NSP1 and NSP2 to include properties where the mortgage is 60 days delinquent or tax payments are at least 90 days delinquent. This allows for a property to be acquired through a short sale, and was intended to streamline the process of acquisition. Changes are retroactive to NSP1.
  Key Changes:
  • Funds available until expended.
  • Grantees have 2 years from the date HUD signs their grant agreements to expend 50% of the funds and 3 years to expend 100%.
  • Establishes a minimum grant size of $1 million for cities and counties.
  • Permits redevelopment or rehab of “vacant” properties to qualify for the 25% low-income set aside (previously only “abandoned or foreclosed” homes counted).
             
Number of Applicants   N/A   482   N/A
             
Number of Awards   309   56   270
             
Deadlines   Funds are to be obligated within 18 months of availability to recipient; and expended within 4 years.   Recipients must expend 50% of allocated funds within 2 years of the date funds are available to the recipient, and 100% of funds must be expended within 3 years.   Grantees have 2 years from the date HUD signs their grant agreements to expend 50% of the funds and 3 years to expend 100%.

 


NSP is administered as Community Development Block Grant (CDBG) funds, though with differences from the normal CDBG provisions. The Community Development Block Grant (CDBG) is a program of the U.S. Department of Housing and Urban Development (HUD). The purpose of CDBG funding is to improve communities through affordable and safe housing, anti-poverty programs, infrastructure development, and expansion of economic opportunities.  Local governments received allocations in NSP1 and participated in either the entitlement program (for cities with over 50,000 people or counties with over 200,000 people) or the States and Small Cities Program (for communities with less than 50,000 people).  CDBG funds are subject to less federal oversight than other categorical grants and are largely used at the discretion of the state and local governments. For additional information:

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How Much Funding Is Available

The first round of funding, NSP1, was $3.92 billion, allocated to states and local government participating jurisdictions through an analysis of foreclosure impact.  Of the $3.92 billion total, each state received a minimum of $19.6 million (0.5%) of the funds.  Download the specific city and state allocations from HUD here

The second round of funding, NSP2, was $2 billion - awarded through a competitive application process open to government entities and nonprofit organizations, including consortia.  For-profits were allowed to apply as part of a consortium with nonprofit organizations and/or government entities.  Download NSP2 allocations here.

The third round of funding, NSP3, is $1 billion, and has been allocated through a formula like NSP1. For a list of NSP3 allocations, click here.

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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

Guidance and clarification on how NSP funds can be used is available through:

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How are Grantees Planning to Administer their Neighborhood Stabilization Program?

Each grantee receiving an allocation of NSP funds is required to submit an action plan to the local HUD field office.  Grantees are required to post their action plans on their public web sites.  Action plans and contact information for all NSP grantees can be found at the Granteesection of HUD's Neighborhood Stabilization Resource Exchange. 

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NSP Targeting Requirements

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

  • All funds must go towards programs that serve individuals and families whose income does not exceed 120 percent of area median income;
  • At least 25 percent of the funds must be used for the purchase and redevelopment of abandoned, foreclosed or vacant homes or residential properties that will be used to house individuals and families whose incomes are less than 50 percent of area median income;
  • 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

Maps of NSP1 and NSP2 target areas can be found at NSP Maps.

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Data and How to identify areas of greatest need

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

  • FY 2008 50% and 120% HUD Area Income Limits for each grantee area
  • Click through map for each statethat provides an excel file that includes:
    • 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 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.

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NSP for Nonprofits

Particularly with NSP2, many nonprofits are taking leadership roles in administering NSP funding.  Click here to access many resources collected especially for nonprofits working with NSP.

Additional Resources

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