May 9, 2008

House Passes Neighborhood Stabilization Act

One in thirteen American families have fallen behind on their mortgage payments. If the struggling family on your block is foreclosed on—and an estimated 2 million American families will be—you’ll likely feel the effects. If your home is within an eighth of a mile, its value will drop by an average of $5,000. The current housing crisis is something that affects all of us, whether directly or indirectly.

Home prices are set to decline for the second year running, the first time that’s happened since the Great Depression. And sadly, the mortgage fiasco is just the beginning: It’s the single biggest drag on our economy, and the origin of the recession we’re now facing. We can’t get our economy back on track until we solve this foreclosure crisis. But so far, the Bush Administration has done little for struggling homeowners.

On May 8th, the House took action and passed H.R. 5818, the Neighborhood Stabilization Act. This bill would establish a $15 billion, HUD-administered loan and grant program for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible. One half of the funds ($7.5 billion) would be in loans, and the other half ($7.5 billion) would be for grants. The bill would help brace the faltering housing market in the following ways:

  • Rehabilitating and buying vacant homes in high foreclosure states. The bill allocates the loan and grants based on the State’s percentage of foreclosures over the last four calendar quarters and the number of subprime loans delinquent over 90 days. States then allocate funds to government entities or for profit and nonprofit organizations for the purchase, rehabilitation, and resale of housing to sell and the purchase, rehabilitation, and operation of rental housing.
  • Government will recoup loans and profits from home sales. The zero-interest loans will finance acquisition and rehabilitation costs. The federal government would be paid back from resale or, in the case of rental properties, refinance proceeds. Loans for homeownership properties must be repaid within three years. For rental properties, the maximum loan term is five years. The federal government would receive up to 50 percent of any appreciation a property owner realizes at resale.
  • Targets housing to low-income families and families striving to get into the middle class. Homes must be sold to families with incomes that do not exceed 140 percent of local area median income (AMI). Rental housing must serve families having incomes at or below local AMI. Preferences will be given to activities serving the lowest income families for the longest period and homeowners whose mortgages have been foreclosed. They may focus on otherwise eligible first responders, veterans, public school teachers, workforce, and homeless persons. At least 50 percent of the grant money must be targeted to families at or below 50 percent of local AMI, and not less than half of this money must target families at or below 30 percent of local AMI.
  • Neighborhoods face rising crime and increasing need for services. In 2005 a Federal Reserve Bank of Chicago study found that “higher foreclosure levels do contribute to higher levels of violent crime.” This increased crime burdens states, cities, and towns with dramatically increased costs to secure abandoned homes and provide police, fire and other services, and with even lower home values. There are widespread reports of increased crime in high foreclosure areas (see, for example, this article in the Washington Post).
  • State and local governments face lost tax revenues and jobs. One study estimates that in just 10 states (AZ, CA, FL, GA, IL, MA, MI, MN, NV, NY), lost tax revenue in 2008 will total $6.6 billion due to foreclosures. Further, an estimated 524,000 fewer jobs are projected to be created this year because of the foreclosure crisis.

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