More NSP Laggards

Add the City of Chicago and the State of Illinois to the list of NSP intermediaries that still have not named the recipients of their Neighborhood Stabilization Program allocation. The Illinois Department of Human Services has been named as the lead adminstrative agency by the Governor.

In all, Illinois received approximately $172 million for its NSP program through the Housing and Economic Recovery Act of 2008.  The Act passed in July 2008. NSP funds must be returned if they are not spent within 18 months.

Illinois is not alone.  The Kansas Department of Commerce still has not named its NSP awards at all.

Yesterday, I mentioned how states including Oregon and California had announced their awards in August.  That is fairly late – North Carolina, for example, named its recipients last March.  Kentucky announced their awards in April.  Indiana made their announcement in May.

HUD has attached some significant criteria for the spending of NSP funds.  All of the criteria reflect good intentions, but together, they make it somewhat difficult to cash flow the projects.  Here are some of the specific rules:

• All activities must benefit households with incomes that are below 120 percent of area median income.
• At least 25 percent of funds must benefit individuals with incomes below 50 percent of area median income.  In Illinois, the State has added an additional challenge – they require that 40 percent of funds go to individuals below 50 percent of AMI.
• All properties must be purchased at a discount to market price.
• NSP funds cannot be used to prevent foreclosures.

The last criterion is especially challenging. Recipients cannot buy, or buy an option, on a property that has not yet entered foreclosure on its own.  When an owner of indebtedness on a potential foreclosure would like to sell to a non-profit, they must first foreclose on their debtor.  By taking the property back, the debt holder assumes liability in the ownership process for environmental claims.

Funds cannot pay for housing counseling, and properties cannot be resold for some time after NSP funds have been used to rehab them.  In a recent report, Brookings suggested that HUD revise rules that prohibit using NSP funds for foreclosure prevention.  The report also proposed that the discount rule (properties must sell at 15 percent below market price) should be revised.