The 8.2 million dollar question

So on Friday, HUD released the allocations for funding from the Housing Rescue Package, and, sadly, Oakland didn’t fare particularly well. Instead of the $30 to $60 million some were expecting, we got a kind of sad $8.2 million.

It isn’t just Oakland that got screwed, of course. The whole State of California, all put together, got $529 million (xls) out of the deal, which sounds like a lot until you see that Florida, which has, like, half as many people (seriously! half!) scored $541 million (xls). I mean, how is that fair?

There’s a couple of reasons for the discrepancy between expectations for the money and the reality of the grants. See, the bill that awarded the $4 billion was pretty general about what to do with it. It called for HUD to allocate the funds to State and local governments based on the number and percentage of foreclosures, subprime mortgages, and mortgages in default. That criteria made things look pretty promising for Oakland, right, what with us having like the eighth highest number of foreclosures in the whole country or whatever.

But then two things happened. First, HUD decided to spread the money out fairly widely. That they would go this route was always a concern. I had certainly hoped they would resist the temptation to do so. While limiting the number of cities that got the money would have obviously pissed off places that had been passed over, highly targeted concentration of the funds would have allowed for the money to make a real impact in communities that need it most.

Oh well. So then the other thing they did was incorporate not just local, but also statewide foreclosure rates and abandonment risk when assigning funds. This puts a place like Oakland at a disadvantage, since on our own, we have a high risk of abandonment and a pretty high foreclosure rate, but the State of California has neither. Of course, even when you take all that into account, it still kind of stings to see the Bakersfield, which has, like, 100,000 fewer people than we do and a similar foreclosure rate, get $9 million versus our $8.2. The State of California gets $145 million to distribute on its own, so it’s possible we’ll get a hefty chunk of that money.

Anyway, it’s lame, but what’s done is done, and it isn’t like $8.2 million is nothing. So now the question becomes: what are we going to do with it? Here’s the general parameters:

NSP grantees develop their own programs and funding priorities. However, NSP grantees must use at least 25 percent of the funds appropriated for the purchase and redevelopment of abandoned or foreclosed homes or residential properties that will be used to house individuals or families whose incomes do not exceed 50 percent of the area median income. In addition, all activities funded by NSP must benefit low- and moderate-income persons whose income does not exceed 120 percent of area median income. Activities may not qualify under NSP using the “prevent or eliminates slums and blight” or “address urgent community development needs” objectives.

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

Since the funding we got is so limited, it’s all the more important that we’re extra careful to make sure it’s spent as efficiently as possible. We certainly don’t want to end up with a situation like the one that got discussed at CED last week, where this Joint Powers Authority we were part of aimed at getting people into homes issued $98 million in bonds for a Lease-Purchase program, then once the money was all spent, only $10 million of it had gone to actually getting people into homes, and even with the $10 million, they were only able to make loans to 40 people.

Downpayment assistance loans and/or loans for repair and rehab of purchased blighted properties would seem like the way to go. The temptation again will likely be to divvy our allocation up among a number of different uses. To do so would be a mistake, as each different effort will eat up a portion of the money in program administration costs. The primary goal should be to ensure that as much of the funding as possible goes to helping actual people and as little as possible goes to bureaucracy.

8 thoughts on “The 8.2 million dollar question

  1. Rebecca Kaplan

    Thanks for posting this. I agree that we definitely need to make the best use of funds, especially given the limited amount. As the NY Times previously pointed out about the funding:

    “Properly targeted, it could stanch the decline in some of the neediest areas, and ideally, begin to revive them by attracting private investment. Success stories could serve as examples for other communities, when, as is likely, a future Congress has to provide more relief. ”

    By using the funds to the extent possible for downpayment assistance, we can greatly increase the number of vacant properties that can be purchased. By putting up 20% of the property value (instead of 100%) we can assist in the purchase of five times as many homes. (And it could include a requirement that this be re-paid if the home is sold. Which would then provide future funding to help more people). We can also ask banks to partner with us, and help expand either downpayment assistance or affordable-loan access.

    In the current mortgage market, it is very hard to get a loan without a decent downpayment, but with 20% down, many middle-income and working class families in Oakland would be able to qualify for loans for the rest of the amount, and thus, would be able to purchase homes.

    I believe that there is a possible consensus here, which would be of benefit to those in need of affordable housing, while also reducing crime and blight and stabilizing the market more broadly. (In other words, in this situation, the needs of home seekers, and the needs of those who provide housing — are not in conflict, but in fact, are in alignment, since in the current market, buyers are having trouble buying and sellers are having trouble selling).

    Looking toward the future, I noticed that they also fund pilot programs through the “Living Cities” project, which gives funding to specific cities to create or expand innovative programs (which can then serve as role models) for “Mitigating the Impact of Concentrated Foreclosures on Neighborhoods.”
    (see: http://www.livingcities.org/2008_files/Living_Cities_Mitigating_Impact.pdf )

    As Oakland works to develop an effective response, and broad support for it, (including use of the $8 million, as well as looking to other sources to fund such programs), which addresses the intertwined issues of blight, crime, foreclosures, predatory loans, excessive vacancy, mortgage market challenges, along with re-hab — perhaps next year Oakland could become one of the Living Cities role models, and obtain additional funding.

    (I believe that the ideal program for Oakland will be centered on downpayment assistance & loans to help residents purchase and re-hab vacant properties. It should include preventing speculative purchases since it is vital to neighborhoods to get the homes re-inhabitted, and it might also need loan counseling. Building a broad community consensus to support such efforts will also provide new details to the program, and the public will to implement it.)

  2. len raphael

    what are the historical stats on oakland’s first time home buyer program for transactions in the last 3 or 4 years. my concern is that expanding a no or low money down program for single family units when housing prices are still dropping is throwing money down a hole.

    can that money be used to do low down payment/shared equity for multi unit rental properties? that would be a safer bet and get more bang out of that paltry sum.

  3. dan schulman

    Given how little money there is, I don’t think it makes much sense to give it to individuals. The city should concentrate on measures that benefit more people. I think the money should go towards demolition. Oakland has too many vacants of poor quality housing that have deteriorated even more in a foreclosed status.

    Many of these foreclosed dwellings have been stripped. Some of them have squatters. Some of them are full of vermin and becoming public health hazards. I am not a real estate expert, so I might be overstating the case. However, I am guessing there are some properties where renovation will cost more than the post-renovated dwelling would be worth.

    If that is the case, we cannot rely on the private sector to remove the blight because it is a money losing proposition. Only, the government working to benefit the community as a whole could remove such blight.

    So, I’m thinking the city should buy the worst of worst. Sell any fixtures or anything else of value. Demolish and remove the structure. Then sell the land at market rates.

  4. VivekB

    I think providing 20% to individuals would be awful, as the current subprime crisis indicates. Folks wouldn’t have skin in the game, and would be highly tempted to walk away just like the folks who are already currently walking away from mortgages.

    The free availability of 0->5% down mortgages are one of the major factors in our financial crisis (not only factor, but certainly one). Too many bad risks on the books, and banks used fancy derivatives to mask their true profile.

    Handing out 20% downpayments is just another mask. I do like Dan Schulman’s idea about buying the worst of the worst, that certainly seems interesting. The question would be about how many are there like that, would it make a long term difference or would the land turn into a public restroom for the homeless/drug addicts/etc. I’m not educated enough to answer that, so i’ll shut up before embarassing myself.

  5. Rebecca Kaplan

    Part of why I suggest loan counseling is to avoid the very situations we have had — in which people got into loans they could not afford, and often did not understand. Also, during the “sub-prime” peak, people were given loans without needing to assess whether they could afford them, and this should not be repeated in any new programs.

    While some properties are in such bad shape that they could not likely be fixed up effectively — there are actually many properties which could be quite beautiful with some repairs. And this would yield neighborhood improvement as well as providing housing.

    Also, buying vacant properties to demolish them is not necessarily cheaper than other options, so doing so would not necessarily make the money go farther. (Especially if the City or the Program had to put up 100% of the cost of the property and demolition). Thus, while in some cases it may be necessary, doing it more broadly than needed would not save money.

    There are vacant lots now which nonetheless are not being purchased. (In part, due to the loan crisis). So, I am not yet convinced that a program which would create more vacant lots (throug mass demolition) would help, since it is not clear that there is enough demand or enough loan availability for people to then buy those vacant lots and turn them to good use.

    This does not exclude the possibility that some properties are such a hazard that they would need to be demolished. But, since there are many problems to solve, and many properties available that could be “saved” — I don’t think that acknowleding that some properties are in too bad shape to be saved should prevent us from trying to “rescue” the ones that are viable.

  6. J. Dabs

    Subprime = subcrime.

    Another way to shift wealth away from the struggling middle and poorer classes to the wealthy.

    Especially JP Morgan, BofA and Gold Man Sacks.

  7. TonyWKoo

    The money should be used for education. Train people on how to build homes or in construction (plumbers, eletricians, roofers, landscaping, etc). Teach people about how to better deal with finances (for houses, credit cards, credit ratings, etc).