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Thursday, March 17, 2011

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 (HERA), P.L. 110-289. Title III (Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes) of HERA authorized the creation of the Neighborhood Stabilization Program (NSP-1). Using the administrative framework of the Community Development Block Grant (CDBG) program, a total of $3.92 billion was allocated to 307 recipients, including all fifty states, Puerto Rico, insular areas, and qualifying local governments. Funds were awarded by formula based on a state or locality’s concentrations of foreclosed homes, subprime mortgage loans, and delinquent home mortgages.

Since the passage of HERA, Congress has appropriated an additional $3 billion in NSP funds to assist state and local governments acquire, rehabilitate, and resell the growing inventory of abandoned and foreclosed residential properties resulting from the home mortgage crisis. In 2009, Congress appropriated $2 billion for NSP-2 activities when it passed the American Recovery and Reinvestment Act of 2009 (ARRA), P.L. 111-5. ARRA revised key elements of the program as a result of a number of issues raised during the early implementation of NSP-1. Funds appropriated under ARRA for NSP-2 were awarded competitively and included non-profit and for-profit entities as direct recipients of funds when teamed with a state or local government. In 2010, Congress appropriated $1 billion for NSP-3 under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act), P.L. 111-203. The Wall Street Reform Act also used a formula to award funds to states and qualifying local government with high concentrations of foreclosed homes, subprime mortgages, and delinquent or defaulted residential mortgages.

Legislation appropriating funds for each of the three rounds included specific deadlines for the obligation and expenditure of funds. Under NSP-1, grantees were required to obligate funds within 18 months from the date HUD signed their grant agreements and to expend their allocations within four years of the allocation date. NSP-2 recipients are required to spend at least 50% of their grant awards within two years of the date funds were allocated, and 100% within three years of the date funds were allocated. Although the Wall Street Reform Act did not include a deadline identifying when funds were to be obligated, it did require that 50% of a recipient’s allocation must be expended within two years, and 100% within three years.

On March 1, 2011, Representative Gary Miller introduced the Neighborhood Stabilization Termination Act, H.R. 861, which would rescind the $1 billion in NSP-3 funds appropriated under the Wall Street Reform Act. On March 2, 2011, the House Financial Services Committee’s Subcommittee on Insurance, Housing, and Community Opportunity conducted a hearing on NSP and three federal foreclosure mitigation programs. On March 9, 2011, the House Financial Services Committee considered, marked up, and ordered reported H.R. 861. During the markup the Committee approved by voice vote an amendment requiring HUD to publish a notice of termination of the NSP program on its website. The notice is to be posted within five days following the bill’s enactment and is to include language directing citizens to contact their congressional representatives and locally elected officials if they are concerned about the impact of foreclosures on their communities.

Date of Report: March 11, 2011
Number of Pages: 18
Order Number: RS22919
Price: $29.95

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