The U.S. Department of Housing and Urban Development (HUD) has announced changes to its Neighborhood Stabilization Program (NSP), which helps communities acquire, rehabilitate and re-sell foreclosed and abandoned properties.
HUD will change how it defines foreclosed and abandoned to include properties in mortgage default and uninhabitable homes with lingering code violations. These expanded definitions, effective immediately, will increase the reach of NSP by allowing more properties to qualify, remove existing barriers caused by market conditions, and help state and local grantees to meet a congressional requirement that they obligate all of their NSP1 funding by September, HUD says.
‘The original NSP rules this administration inherited through language from the 2008 legislation limited the impact of the Neighborhood Stabilization Program, and we've heard that clearly from our partners on the ground,’ says HUD Secretary Shaun Donovan. ‘The rules needed to be more flexible, so our local partners can put taxpayer dollars to work quickly to stabilize neighborhoods hard-hit by foreclosure."
HUD previously defined the term "foreclosed" to apply only to properties in which the foreclosure process was completed. Local communities suggested this narrow definition was not a good fit for market conditions, because many properties were lingering in the foreclosure process and beyond the reach of NSP.
The original definition limited a grantee's ability to intervene strategically when a lender initiates but does not complete foreclosure, or where a default is allowed to linger. In addition, many lenders are transferring properties to aggregators or loan servicers, which then arrange for final disposition. In some of these cases, the previous policy did not consider the properties to retain their foreclosed status after title is transferred to the aggregator or the servicer.
Properties will now be eligible for NSP assistance if any of the following conditions apply:
- The property is at least 60 days delinquent on its mortgage and the owner has been notified;
- The property owner is 90 days or more delinquent on tax payments;
- Under state or local law, foreclosure proceedings have been initiated or completed; or
- Foreclosure proceedings have been completed and title has been transferred to an intermediary aggregator or servicer that is not an NSP grantee, subrecipient, developer or end user.
When the NSP program was originally designed following the passage of the Housing and Economic Recovery Act of 2008, the term "abandoned" was defined as a property that had been foreclosed upon and was vacant for at least 90 days. This definition effectively excludes owner-abandoned properties where tenants are still in place. HUD determined this limitation was a substantial barrier to the preservation of existing affordable housing.
To address this limitation, HUD is expanding the definition of an abandoned property to include homes where no mortgage or tax payments have been made by the property owner for at least 90 days or a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90 days of notification of the deficiencies.