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Sunday, February 7, 2010

Community Development Block Grants: Neighborhood Stabilization Program; Assistance to Communities Affected by Foreclosures

Eugene Boyd
Analyst in Federalism and Economic Development Policy

Oscar R. Gonzales
Analyst in Economic Development Policy

In response to the rising number of home mortgage foreclosures the 110th Congress passed the Housing and Economic Recovery Act of 2008, P.L. 110-289, formerly H.R. 3221 (HERA), which was signed by the President on July 30, 2008. Title III (Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes) of HERA resulted in the creation of the Neighborhood Stabilization Program (NSP), which allocates additional federal financial assistance to all fifty states and to local governments with high concentrations of foreclosed homes, subprime mortgage loans, and delinquent home mortgages. 

Many economists contend that increased numbers of foreclosures contribute to neighborhood destabilization, trigger housing price depreciation, and result in declining state and local revenues and subsequent service cutbacks. Although Congress did include provisions in HERA that reformed the mortgage financing industry, this report will focus on legislative provisions of the act that allocate block grant assistance to state and local governments to aid them in acquiring, rehabilitating, and reselling the growing supply of foreclosed and abandoned housing. Title III of HERA uses the framework of the Community Development Block Grant (CDBG) program to channel an additional $4 billion in assistance to state and local governments. It should be noted that Title III of HERA overcame a veto threat by then-President Bush who contended that the assistance would result in the rescue of lenders and speculators. The act also drew criticism from fiscal conservatives who argued for cuts in other programs to offset the $4 billion appropriation. 

With the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5), Congress appropriated an additional $2 billion for NSP activities (NSP 2), and revised key elements of the program as a result of a number of issues raised during the early implementation of NSP. Funds appropriated under ARRA for the NSP will be awarded competitively. In addition, non-profit entities will be allowed to be direct recipients of funds. This is a substantial deviation from NSP funds appropriated under HERA, which used a formula-based method to allocate funds only to state and local governments. In turn, HERA allows state and local governments to designate non-profit entities as sub-recipients of funds. This report will be updated as events warrant.

Date of Report: January 28, 2010
Number of Pages: 15
Order Number: RS22919
Price: $29.95

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