The Neighborhood Stabilization Act authorizes the Department of Housing and Urban Development (HUD) to issue $7.5 billion in grants and $7.5 billion in no-interest loans to states for the purchase, sale, and rehabilitation of vacant foreclosed homes. The legislation allocates funds based on the percentage of foreclosures in a state during the last four calendar quarters and the number of subprime loans that have been delinquent in the state for more than 90 days. Each state must submit a plan to HUD that outlines how it will disburse the federal grants and loans to government, non-profit, and for-profit agencies, giving preference to activities that serve the lowest-income families for the longest period and that serve homeowners whose mortgages have been foreclosed. The bill mandates that homes purchased under the act be sold to families with incomes below 140% of the local median income and that housing purchased for rental be available to families whose incomes are less than or equal to the local median income. At least half of the grant money must be targeted to families with incomes below 50% of the local median income and at least half must be targeted at families with incomes below 30% of this income. The bill authorizes the federal government to recoup up to 50% of any appreciation that a property owner gains from resale.
The Act guarantees funds to metro areas and urban counties that have high percentages of foreclosures and delinquent subprime loans. The bill limits the amount of federal funds that any single state can receive. Grants are to be used primarily for administrative and limited rehabilitation costs, while loans are to be used primarily for the purchase and rehabilitation of vacant foreclosed homes. The act includes protections for renters living in foreclosed properties.
The Middle-Class Position:
The Middle Class Supports. The Neighborhood Stabilization Act addresses two important problems plaguing aspiring middle-class Americans: the community breakdown that can result from vacant foreclosed homes in neighborhoods across the country and the lack of affordable housing. Middle-class Americans who are current on their mortgages and face no personal risk of foreclosure are nevertheless harmed when a foreclosed home down the street brings down property values, erodes the local tax base, and threatens to become a magnet for crime. The Center for Responsible Lending has shown that approximately 40.6 million homes will experience devaluation because of nearby subprime foreclosures and that homeowners living near foreclosed properties will lose approximately $5,000 on the value of their homes. At the same time, one of the causes of the foreclosure crisis was a lack of affordable housing and the targeting of low-income neighborhoods by subprime lenders. By funneling federal money to local agencies to serve lower- and extremely low-income individuals, the Neighborhood Stabilization Act will help neighborhoods recover from the harm done to their communities by foreclosures while helping to ensure that neighborhoods can accommodate aspiring middle-class Americans. The bill’s allocation of funds to metro areas and urban counties further ensures that the communities hardest hit by the foreclosure crisis receive much needed relief. Providing funds for rental properties, along with protections for renters of foreclosed properties, recognizes that the foreclosure crisis affects aspiring middle-class and middle-class renters as well as homeowners.
From the Experts:
“In communities across the country, concentrated foreclosures have left thousands of properties vacant, contributing to a downward spiral of falling property values and rising crime. As a result, local tax bases in many areas have weakened even as the costs of public services such as police protection and trash collection have increased…Lenders would benefit [under H.R.5818] from the purchase of their foreclosed properties but not excessively so, since buyers would purchase the properties at a discount from their current value. Homeowners in these communities who are not facing foreclosure will also benefit, as local home prices will fall less, and neighborhood conditions will become more stable, than in the absence of the bill.” – Barbara Sard, Director of Housing Policy, Center on Budget and Policy Priorities (5/7/2008)
“In addition to creating jobs and infusing money into local economies as those wages are spent, the neighborhood stabilization money will also relieve pressure on municipal budgets, which rely heavily on property tax revenues for funding…While municipalities will likely continue to incur some costs from vacant, bank-owned properties, purchasing these properties and restoring them to productive use rather than allowing them to languish will limit the degree of deterioration and minimize future expenditures.” – Andrew Jakabovics, Associate Director of the Economic Mobility Program, Center for American Progress
Beyond this Bill:
The Neighborhood Stabilization Act will inevitably help banks holding foreclosed properties. However, targeting aspiring middle-class families and funneling aid to the areas hardest hit by the foreclosure crisis mean that neighborhoods at risk of falling property values and the decreased services that result from shrinking state and local revenues will be protected. Yet, the Neighborhood Stabilization Act does nothing for homeowners in danger of losing their homes to foreclosure. Congress has balked on measures that would aid these homeowners, while at the same time providing bail outs for the construction industry. Perhaps the most effective foreclosure prevention measure, a revision of the bankruptcy code that would have prevented 600,000 foreclosures, was filibustered in the Senate. Congress must take action to keep struggling aspiring middle-class and middle-class families in their homes.
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