Neighborhood Stabilization

Program Summary and Purpose:

Describing a Minnesota foreclosure density map she keeps in her office, State Senator Linda Higgins stated, “there are so many dots overlaid on other dots that there is no base map that can be seen.” Her testimony was part of a hearing held by the Subcommittee on Housing and Community Opportunity that came on the heels of one of the most drastic changes in the US housing market to in recent history. Delinquency rates among US Residential Subprime Mortgages shot from their pre-recession lows of 10% to well over 20%, pushing thousands of homeowners into foreclosure

When a home becomes vacant, it destabilizes a neighborhood quickly and on multiple fronts.  The presence of empty homes lowers local house prices.  Lower home values limit city property tax revenues, which in turn limits a city’s ability to properly fund education and local services.  Vacant homes cause also lead to increased crime in a neighborhood.  In order to  combat the negative effects caused by the wave of foreclosures in the recent past, the Ffderal government created the Neighborhood Stabilization Program (NSP).  The NSP came in two installments, referred to as NSP1 and NSP2.  Congress is currently working on third installment of the NSP program, known as NSP3.

NSP1: The Housing and Economic Recovery Act of 2008 passed on July 24, 2008, creating the first installment of the Neighborhood Stabilization Program, NSP1.  NSP1 distributed grants to states, cities, and counties based on the number of home foreclosures, the number of subprime loans, and the number of homes in default or delinquency within their jurisdiction. Funding was used to purchase and rehabilitate homes, establish land banks to purchase properties, demolish blighted structures, and redevelop homes. Minnesota recipients of NSP1 funding included the cities of Minneapolis and St. Paul, as well as Anoka, Dakota, and Hennepin Counties

NSP2: The American Recovery and Reinvestment Act of 2009 provided $1.93 billion for the Neighborhood Stabilization Program, though the conditions of these funds are different from the first installment. Most notably, these funds are available to nonprofits, for-profits, and governmental bodies. These groups had to apply for grants and in January 2010 the Department of Housing and Urban Development (HUD) announced that the funds would be split between 56 grantees, most of which were local government groups and nonprofits.  With some small exceptions, the funds were used to accomplish the same goals set out in NSP1.  Minnesota received over $37.4 million of NSP2 funding, most of which went to the cities of Minneapolis and St. Paul.

NSP3: The House of Representatives passed funding for a third NSP installment in 2009 (part of H.R. 4173), though the proposed NSP3 funding has not yet passed the Senate (S. 2969). The status of the bill is available here.

Current Status: While the total amount awarded through NSP is substantial, additional funding is necessary to make NSP plans more broadly successful. To put the scope of the foreclosure crisis in perspective, consider the following: In 2009 alone, homeowners in the Twin Cities metro area lost $7.8 billion in value due to foreclosure, compared to the $6 billion dollars the federal government has dedicated to NSP nationally since 2008 Due to the depth of the national foreclosure crisis, the federal funding provided is merely a drop in the bucket. Additionally, current NSP funding does not extend to renters living in properties abandoned by owners. The current definition of ‘abandoned’ leaves these properties ineligible for funding.

For more information:

NSP Summary from the Department of Housing and Urban Development