The HERA Neighborhood The HERA Neighborhood Stabilization Program:Stabilization Program:

Converting Liabilities into Assets Converting Liabilities into Assets

Professor Frank S. AlexanderProfessor Frank S. AlexanderEmory Law SchoolEmory Law School

Frank S. Alexander 2008Frank S. Alexander 2008

Atlanta Neighborhood Development Partnership Atlanta Neighborhood Development Partnership Atlanta Regional CommissionAtlanta Regional Commission

Georgia Dept. of Community AffairsGeorgia Dept. of Community AffairsULI Terwilliger Center for Workforce HousingULI Terwilliger Center for Workforce Housing

October 8, 2008October 8, 2008

A. Housing and Economic Recovery Act of A. Housing and Economic Recovery Act of 2008, Pub. L. 110-298 (July 30, 2008)2008, Pub. L. 110-298 (July 30, 2008)

I. The ContextI. The Context

Housing Finance Reform (FNMA, FHLMC, FHLBB) Housing Finance Reform (FNMA, FHLMC, FHLBB)

Mortgage Broker Licensing ActMortgage Broker Licensing Act

Hope for Homeowners Act ($300B in refinancings)Hope for Homeowners Act ($300B in refinancings)

Tax Provisions (LIHTC, tax exempt bonds, tax credit Tax Provisions (LIHTC, tax exempt bonds, tax credit for first time homebuyers)for first time homebuyers)

““Emergency Assistance for the Redevelopment of Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes” (Abandoned and Foreclosed Homes” (§§ 2301-2305)§§ 2301-2305)

B. Emergency Economic Stabilization Act B. Emergency Economic Stabilization Act 2008 (October 3, 2008)2008 (October 3, 2008)

I. The ContextI. The Context

From 3 pages to 460 pages in 10 daysFrom 3 pages to 460 pages in 10 days

From $700B to $850B in 10 daysFrom $700B to $850B in 10 days

$700 for Troubled Asset Relief Program $700 for Troubled Asset Relief Program

Mortgage Related Securities, including derivatives Mortgage Related Securities, including derivatives (commercial and residential), and “any other financial (commercial and residential), and “any other financial instrument”instrument”

Likely to have no impact on pending foreclosures or Likely to have no impact on pending foreclosures or post-foreclosure REOpost-foreclosure REO

A. The PurposesA. The Purposes

II. Neighborhood Stabilization GrantsII. Neighborhood Stabilization Grants

““Redevelopment of abandoned and foreclosed upon Redevelopment of abandoned and foreclosed upon homes and residential properties” homes and residential properties”

““Purchase and rehabilitate homes and residential Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed properties that have been abandoned or foreclosed upon” upon”

Financing mechanisms (soft-seconds, shared-equity)Financing mechanisms (soft-seconds, shared-equity)

““Establish land banks” Establish land banks”

““Demolish blighted structures” Demolish blighted structures”

Priority for areas with “greatest need”: home Priority for areas with “greatest need”: home foreclosures; subprime loans; defaults and delinquencyforeclosures; subprime loans; defaults and delinquency

B. The AllocationsB. The Allocations**

II. Neighborhood Stabilization GrantsII. Neighborhood Stabilization Grants

Georgia DCA $77,085,125DeKalb $18,545,013Atlanta $12,316,082Gwinnett $10,507,827Fulton $10,333,410Clayton $ 9,732,126Cobb $ 6,889,134Columbus-Muscogee $ 3,117,039Augusta $ 2,437,064Savannah $ 2,038,631

C. The ProcessC. The Process

II. Neighborhood Stabilization GrantsII. Neighborhood Stabilization Grants

Consolidated Plan Amendments submitted by Consolidated Plan Amendments submitted by December 1, 2008December 1, 2008

15 calendar days of public comment15 calendar days of public comment

Intergovernmental joint requests of two or more Intergovernmental joint requests of two or more contiguous entitlement jurisdictions, or a community contiguous entitlement jurisdictions, or a community and the state.and the state.

Direct applications and subrecipient agreementsDirect applications and subrecipient agreements

Data identifying geographic areas with “greatest need” Data identifying geographic areas with “greatest need” with narrative on distribution and use and correlation to with narrative on distribution and use and correlation to three variables determining greatest need.three variables determining greatest need.

D. Key Definitions & Concepts D. Key Definitions & Concepts

II. Neighborhood Stabilization GrantsII. Neighborhood Stabilization Grants

““Abandoned” is when (i) foreclosure has commenced, Abandoned” is when (i) foreclosure has commenced, (ii) no payments for 90 days, (ii) no payments for 90 days, andand (iii) vacant for 90 (iii) vacant for 90 days. days.

““Current market appraised value” is appraisal within Current market appraised value” is appraisal within 60 days of offer. 60 days of offer.

““Foreclosed” is completion of foreclosure sale or deed Foreclosed” is completion of foreclosure sale or deed in lieu of foreclosure.in lieu of foreclosure.

REO purchases must be at a discount (as locally REO purchases must be at a discount (as locally determined) (but 5% to 15% average range)determined) (but 5% to 15% average range)

Funds must be obligated in 18 months, and reuse of Funds must be obligated in 18 months, and reuse of program income by July 30, 2013.program income by July 30, 2013.

E. Targeting E. Targeting

II. Neighborhood Stabilization GrantsII. Neighborhood Stabilization Grants

All funding “shall be used with respect to families All funding “shall be used with respect to families at or below 120% of AMI”at or below 120% of AMI”

25% of funding is to house families at or below 25% of funding is to house families at or below 50% of AMI50% of AMI

Emphasis on long-term affordabilityEmphasis on long-term affordability

General blight elimination is not sufficientGeneral blight elimination is not sufficient

Financial leverage is potential keyFinancial leverage is potential key

Land Banks have special treatment for long term Land Banks have special treatment for long term holding of properties (up to ten years).holding of properties (up to ten years).

A. Which Properties?A. Which Properties?

III. The ChallengesIII. The Challenges

Geographic areas of greatest needGeographic areas of greatest need

Properties that are the greatest liabilitiesProperties that are the greatest liabilities

Properties that are closest to re-occupancy Properties that are closest to re-occupancy

Neighborhoods that have been abandonedNeighborhoods that have been abandoned Neighborhoods that are at risk of abandonment Neighborhoods that are at risk of abandonment

Which properties are available from which REO Which properties are available from which REO asset manager? Consider carefully FHA asset manager? Consider carefully FHA properties.properties.

B. Who Has CapacityB. Who Has Capacity

III. The ChallengesIII. The Challenges

Negotiating large scale residential property Negotiating large scale residential property acquisitions at a discountacquisitions at a discount

Managing rehabilitationsManaging rehabilitations

Managing rentalManaging rental

Managing homeownership programs Managing homeownership programs

Managing demolitions and vacant properties Managing demolitions and vacant properties

Intergovermental collaboration, and subrecipient Intergovermental collaboration, and subrecipient expertise, are going to be criticalexpertise, are going to be critical

1. Know the properties.

3. Enforce the Codes.

2. Know the REO owners and asset managers

IV. Systemic StrategiesIV. Systemic Strategies

By location: zip code, census tract, USPS vacancies, GIS By condition: Occupancy, rehab, demolition

Required foreclosure deed recordation Vacant property registration ordinances

Clear housing and building substantive codes Clear costs and penalties, secured by first lien.

4. Transfer ownership.

5. Reoccupy “C.O.” properties as soon as possible.

6. Remove deteriorated structures as soon as possible.

Negotiated acquisition, emphasizing leverage points Foreclosure of public liens (taxes, nuisance abatement

liens)

Convert to affordable homeownership Short term leases at cost

Move quickly to secure Move quickly to demolish

IV. Systemic StrategiesIV. Systemic Strategies

Land Banking Conversion to Community Assets

Foreclosed REOLocal Government,

NGO, CDC

Land Bank

Banking Agreement (Deposit & Withdrawal); Deed; Holding Costs

Property Management

Transferees

Purchase Agreement; Deed; Free and clear or Mortgage at 70% of FMV.

Deed; Public Purpose CCR

Subordination Agreement.

The HERA Neighborhood The HERA Neighborhood Stabilization Program:Stabilization Program:

Converting Liabilities into Converting Liabilities into AssetsAssets

Professor Frank S. AlexanderProfessor Frank S. AlexanderEmory Law SchoolEmory Law School

Frank S. Alexander 2008Frank S. Alexander 2008

Atlanta Neighborhood Development Partnership Atlanta Neighborhood Development Partnership Atlanta Regional CommissionAtlanta Regional Commission

Georgia Dept. of Community AffairsGeorgia Dept. of Community AffairsULI Terwilliger Center for Workforce HousingULI Terwilliger Center for Workforce Housing

October 8, 2008October 8, 2008