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Business Review - June 16, 2009
Lenders pass over program's grant money, red tape to sell to investors
By: Terry Sheridan
A year after millions in federal funds were earmarked for South Florida
cities and counties to buy and sell foreclosed properties, no money has
been paid out as lenders and bargain-hunting investors thwart deals.
Now the U.S. Department of Housing and Urban Development, the agency
disbursing the money, is planning a pricing change to allow program
participants to compete against bulk buyers and investors eager to pay
lenders’ asking prices.
Called the Neighborhood Stabilization Program (NSP), the $4 billion
nationwide plan was announced last June as part of the federal Housing
and Economic Recovery Act.
The funding allocations through HUD’s Community Development Block Grant
Program were announced in September with an 18-month deadline for
recipients to dedicate their money, or lose it. They have four years to
South Florida local governments were to receive almost $200 million to
acquire land and foreclosed houses, to demolish or rehabilitate
properties or to offer down payment assistance to low- to
moderate-income buyers with household incomes no more than 120 percent
of the area median income.
But no local governments have submitted invoices to HUD for
reimbursement under the program, and the agency expected the program to
be further along than it is, said Armando Fana, HUD’s Miami field
Bureaucratic red tape is partly to blame, including a database payment
system not yet online. But critics say lenders favor investors over
program participants, and say HUD’s requirement that participants buy
houses at a discount have stalled the program.
The agency received enough complaints about lenders unwilling to work
with NSP buyers that HUD and the Miami office of the Federal Reserve
Bank of Atlanta met with representatives of BankUnited, Wachovia/Wells
Fargo, Citibank Mortgage, Regions Bank and HSBC to address concerns.
Other lenders were invited but did not attend, Fana said.
Wachovia spokeswoman Kathy Harrison said the lender is not resisting
the program. Wachovia is offering non-profit groups and local
governments a first look at an online listing of foreclosed properties
before they are marketed to investors and the general public, she said.
HSBC declined comment. The other lenders did not return phone calls by
“We were hearing about barriers the grantees were facing,” said Fana.
The program allows local governments to select nonprofit groups to buy
and rehab properties and sell them to buyers who meet income
requirements. NSP rules also allow vendors to pre-qualify or certify
individual buyers, who then can deal with lenders directly.
“Communication was a big one, just being able to reach the right people
to even begin to discuss a transaction. The other is being able to
purchase at a discount.”
The program allows NSP participants to buy foreclosed houses at 15
percent below the appraised value. But lenders have balked at that,
saying they have plenty of competitive buyers willing to pay full
asking prices or more on houses that already have plummeted in value.
This week, HUD expects to announce that the required 15 percent
discount will be decreased to 2 percent to 5 percent, Fana said.
Local government officials let out a sigh of relief at the news.
“Why would anyone give you another 15 percent discount when prices are
so competitive at market value,” asked Shalley Jones Horn, director of
the Miami-Dade Office of Community and Economic Development in Miami.
The department oversees the county’s $62 million NSP allocation.
Horn, former Florida director of Fannie Mae, said she told HUD
officials at the outset that the discount requirement would be a
“You’ve got investors that will give lenders more than they are asking
— and pay with cash,” she said.
It took the Broward Alliance of Neighborhood Development (BAND), a
nonprofit consortium of Broward and Miami-Dade housing groups, almost
two months before a bank accepted its offer on a foreclosed house in
Plantation. And that was after other lenders refused to work with the
group, said BAND member Katharine Barry. Plantation selected BAND in
April to handle the city’s $2 million allocation.
BAND’s deal hasn’t closed yet, and officials declined to identify the
bank or the property.
Barry, who also is president of H.O.M.E.S. in Fort Lauderdale, a BAND
member, said buying the foreclosed properties is proving to be more
difficult than anyone expected.
“I don’t know how to describe it,” she said. “Even though there are so
many foreclosures, they’re hard to buy. One part of the bank doesn’t
know what the other part is doing. And some said they don’t want to
work with NSP grantees.”
Suzanne Weiss, associate director of nonprofit Neighborhood Housing
Services of South Florida in Miami, said some municipalities have
qualified prospective home owners, given them NSP letters indicating
the amount of money they have available to buy a foreclosed home, but
they are outbid by investors who typically are cash buyers.
“You’d think a seller would love to see someone with $50,000 in their
hand, but the banks are not wanting to deal with these people,” she
HUD’s Fana said some lenders are contracting with asset managers to
pool properties and sell them in bulk to investors.
“One of the complaints we’ve heard from grantees is that asset
management companies aren’t listing these properties [for sale] so that
they can be sold to investors,” he said.
At the Broward Real Estate Investors Association, president Bill Leon
said he has property listings from a fee-based database that indicate
almost 31,000 foreclosed condos and single-family houses in the
tri-county area are not listed with bank brokers or the Multiple
Listing Service. Another 135,000 condos and houses have not yet been
sold at auction but are in the foreclosure process.
“I read the [NSP] requirements, and there was so much red tape that I
wouldn’t get involved,” he said. “They made it too difficult.”
Paperwork alone can total 30 pages. And property values are in such
flux that appraisals are problematic, he said.
In Coral Springs, 52 prospective buyers were certified through the NSP
program, only to see the homes purchased by cash buyers, said Susan
Hess, the city’s community development director.
“It’s good these homes are selling. But we’re hoping to get people who
will [own and] live in them,” she said. “The investors will be renting
Charles Durkin, West Palm Beach’s housing finance manager, said the
city has 22 pending NSP purchases in the Coleman Park neighborhood. But
dealing with lenders’ asset managers, appraisals that “cause a kink” in
negotiations and competitive investors mean not all the deals may
“It’s harder than I thought it would be, but you have to do what you
have to do,” he said. “I have to be optimistic.”