5.0 HRSR 12-01-2008ITEM # 5.
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MEMORANDUM
TO: Housing 8~ Redevelopment Authority
FROM: Jeff Gongoll, Community Development Director
DATE: December 1, 2008
SUBJECT: Consider Grant Application for Neighborhood
Stabilization Program (NSP) Funds
On Friday, November 21, 2008, Mayor Klinzing, Director of Economic Development Cathy
Mehelich and I attended a "working group" meeting regarding federal foreclosure recovery
funds and specifically the recently established Neighborhood Stabilization Program (NSP). I
have asked Mayor Klinzing to attend the HRA meeting to join in the discussion regarding
this program. The Mayor is also on the Board of Directors of the Greater Minnesota
Housing Fund (GMHF), anon-profit affordable housing intermediary. The GMHF was the
sponsor of the working group meeting on November 21, along with Minnesota Housing.
Background
In response to the drastic increase in foreclosures and the impact of the subprime lending
situation on housing, Congress authorized the NSP program under the Housing and
Economic Recovery Act (HERA) signed by the President in July 2008. NSP provides
emergency assistance for the redevelopment of abandoned and foreclosed homes that might
otherwise become sources of abandonment and blight. Minnesota Housing is a grantee for
the state in the amount of $38.8 million and will administer the use of these funds in highly
impacted communities in greater Minnesota. ($20 million has also been allocated specifically
to metro area jurisdictions).
The Draft Plan (just released) lists communities in the greater Minnesota counties listed
below as eligible for up to $4.7 million of the state portion of NSP funds. In addition to Elk
River, the following communities have been identified in the Draft Plan as eligible to apply
for certain portions of funds in anon-competitive pool; Isanti, Big Lake, Buffalo, St.
Michael, Otsego, Monticello, Princeton, and Zimmerman. Additionally, communities in
Sherburne, Isanti, Benton, Chisago, Stearns and Wright counties may apply for funds in a
designated $6 million competitive pool.
It has been determined that Elk River is eligible for $715,446 in NSP funds.
NSP Requirements:
As the grantee agency, Minnesota Housing has established the following NSP goals:
1. To maximize the revitalization and stabilization impact on neighborhoods;
2. To complement and coordinate with other federal, state and local investment in
the targeted neighborhoods;
3. To preserve affordable housing opportunities in the targeted neighborhoods.
Additionally, Minnesota Housing has stated that priority consideration and emphasis will be
given to those areas:
- with the greatest percentage of home foreclosures;
- with the highest percentage of homes financed by a subprime mortgage related
loan; and
- identified by the State or unit of local government as likely to face a significant rise
in the rate of home foreclosures.
There are five established and defined uses for NSP funds:
1. Establish financing mechanisms for purchase and redevelopment of foreclosed
homes and residential properties.
2. Purchase and rehabilitate homes and residential properties that have been
abandoned or foreclosed, in order to sell, rent, or redevelop such homes and
properttes.
3. Establish land banks for homes that have been foreclosed.
4. Demolish blighted structures.
5. Redevelop demolished or vacant properties.
Ineligible activities include:
1. Foreclosure prevention.
2. Demolition of non-blighted structures.
3. Purchase of properties not abandoned or foreclosed upon.
4. Redevelopment for commercial purposes.
Next Stets
The deadline for submittal of a plan is January 17, 2009. Therefore, if the HRA is interested
in pursuing this program, we must develop a formal response. This response should include
the HRA's goals, plans and programs that will utilize the NSP allocation as per the
requirements of the program. Please note that the GMHF has recommended each
community to submit a letter to Minnesota Housing requesting certain revisions to the
application process; one of those being a request for an extension of the formal submittal
deadline from the communities. Please refer to the attached letter from Mayor Klinzing
which asks for this extension, along with other suggestions to help form a clearer submittal.
We recommend proceeding with a formal application to the NSP and request the HRA to
discuss, prioritize and help coordinate the City's response.
Attachments
^ Notice of NSP Program Meeting
^ Letter from Mayor Klinzing to Ruth Simmons, Minnesota Housing
^ NSP Needs Survey of eligible communities
^ Foreclosure Recovery Strategies
^ List of Foreclosures in Elk River
^ Foreclosure Recovery Financing Programs
Special Meeting:
For Foreclosure Impacted Communities in Greater Minnesota
PREPARING TO ACCESS THE FEDERAL
NEIGHBORHOOD STABILIZATION PROGRAM (NSP)
FORECLOSURE RECOVERY
Regional Program & Strategy Meeting
Friday November 21, 2008
Elk River Holiday Inn
9200 Quaday Ave. NE, Elk River, MN 55330 (ma )
12:00 am TO 3:00 pm
Event is free -- Box Lunch Provided
RSVPs required for lunch counts by end of the day Thursday November 20"'.
o Neighborhood Stabilization Program (NSP) Funding Overview
o Highly Impacted Areas -- Eligible Zip Codes
o Foreclosure Recovery Program Strategies
o Best Practices, Program Frameworks, Minnesota Examples
o Planning and Technical Assistance Resources
Sponsored by:
Greater Minnesota Housing Fund
Minnesota Housing
Register Online Here
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Background: The Housing and Economic Recovery Act (HERA), which was signed into law in July 2008,
will bring $58 million of new federal resources to the state of Minnesota to support a variety of foreclosure
recovery activities under the Neighborhood Stabilization Program (NSP). Approximately $20 million has
been designated directly to metro-area jurisdictions, and $38.8 million will be administered by Minnesota
Housing for use in highly-impacted communities in both the metro and greater Minnesota.
Federal Monies for Your Community: The Draft plan Qust released) lists communities in the greater
Minnesota counties listed below as eligible for up to $4.7 million of the state portion of NSP funds. Zip
codes in the communities of Isanti (55040), Big Lake (55309), Buffalo (55313), Saint Michael (55313), Elk
River (55330), Otsego (55330 and 55362), Monticello (55362), Princeton (55371) and Zimmerman
(55398) have been identified in the Draft Plan as eligible to apply for certain allocations of funds in a non-
competitive pool. Additionally, communities in Sherburne, Isanti, Benton, Chisago, Stearns, and Wright
counties may apply for funds in a designated $6 million competitive pool.
The Draft Plan is available for review and public comment:
http://www.mnhousingaov/resources/aoply/MHFA 007433.aspx//www.mnhousin~.aov/resources/apply/MHFA 007433.aspx.
Important Dates:
• Public comments due November 24, 2008
• Applications for funds due January 17, 2009
From: mayorer@q.com
To: ruth.simmons@state.mn.us
Subject: comments on Minnesota Housing NSP Fund
Date: Fri, 21 Nov 2008 21:38:25 +0000
Ruth Simmons,
Minnesota Housing
400 Sibley St., Suite 300
St. Paul, MN 55101
Dear Ms. Simmons,
Thank you for your presentation at the meeting, sponsored by Greater Minnesota
Housing Fund, in Otsego Friday afternoon.
The City of Elk River is excited about the opportunity to acquire some, much needed,
funds to assist in stabilizing our neighborhoods that have been extremely affected by
mortgage foreclosures and abandonment. Many of our neighborhoods have been
detrimentally impacted by the 148 foreclosures experienced in the city through
September 6, 2008. With the need so great and wide-spread, we will be carefully
strategizing what to include in our application in order to get the optimum positive
impact.
Please accept this email as my comments on the draft Neighborhood Stabilization
Program (NSP) Action Plan.
The major concern is the very tight application deadline currently in place. The City
of Elk River first received notice of eligibility for these funds November 14, 2008. We
have limited staff in place to work on making application. We are exploring
contracting with an experienced non-profit housing administrator but even then the
city will be required to provide significant staff time in order to meet the January 17
deadline. We are very interested in making the best application possible in order to
be successful in acquiring funding and also putting together a program that will best
serve the needs in the city.
I agree with Greater Minnesota Housing Fund's suggestion that communities be
allowed to indicate an intent to apply by January 17, 2009 with full applications due
by April 17, 2009.
Also, the current plan to collapse non-awarded funds into one pool would definitely
put second-round applications from Greater Minnesota communities at a
disadvantage compared to Metro applications. Even though Greater Minnesota has
35 percent of all foreclosures in 2008 in the state, only 20 percent of the NSP money
is currently allocated to Greater Minnesota communities. if non-awarded funds from
Greater Minnesota are pooled and awarded on a state-wide basis, that percentage
would fall further below 20 percent.
Again, I agree with Greater Minnesota Housing Fund's suggestion that the non-
awarded funds be put into two pools -Greater Minnesota and Metro. Then after an
initial re-application period of two to three months, any funds left could be pooled
into one state-wide fund.
Also, the City of Elk River, which is Energy City, MN, is interested in a greater
emphasis on green rehabilitation standards as criteria for NSP awards. Since the
industry has established a significant link between green design and housing
operation affordability, including a bonus for projects with green design components
would be appropriate.
I appreciate this opportunity to make comment and look forward to working with you
further as we proceed through the NSP application process.
Sincerely,
Stephanie Klinzing,
Mayor of City of Elk River
Sherburne, Wrighty Stearns and lsanti Counties
BACKGROUND
In an effort to help quantify the needs of greater Minnesota communities identified as
eligible to apply for non-competitive funds as proposed in the Draft Minnesota Housing
"Neighborhood Stabilization Program Action Plan", Greater Minnesota Housing Fund
has completed a survey of community leaders and city staff in 9 cities in the following zip-codes
based on their identified eligibility to apply for funding. Communities include: Isanti (55040),
Big Lake (55309), Buffalo (553 13), Saint Michael (553 13), Elk River (55330), Otsego
(55330 and 55362), Monticello (55362), Princeton (55371) and Zimmerman (55398).
KEY FINDINGS
^ At least 1,042 current residential foreclosures in 9 communities (missing data).
^ Of these at least 150 homes in older core neighborhoods.
^ Approximately 856 homes and lots in new sub divisions
^ Approximately 68 partially constructed homes
^ Over 193 vacant properties
^ Impacts are diverse throughout identified communities and include the following
key issues and areas of local concern:
o Foreclosure concentrations in older core neighborhoods, dilapidated and
vacant homes, water damage, vandalism, and illicit use of abandoned
properties.
o Unfinished homes and foreclosed lots in newer partially developed sub-
divisions.
o Foreclosure impacts on rental properties that vary in size from
townhomes, duplexes, to small scale rental complexes where neighboring
units are occupied.
o Significant blighting effects caused by vacant homes and homes that have
suffered substantial damage from deferred maintenance and pipe-bursts.
o Homes vandalized by past owners in the wake of foreclosure and in need
of substantial rehabilitation to make homes marketable.
o Shift in for-sale units being converted to rental, and local interest in
exploring lease to own program models.
o Substantial devaluation of homes throughout a majority of communities
with examples exceeding 25% or more.
Communities Identified in Draft Minnesota Housing "Neighborhood
Stabilization Program Action Plan" as Eligible to Apply for Non-Competitive
Funds Based on Zip Codes
o Building official inspecting homes to get counts of abandonment including
lawn maintenance, snow removal and resident complaints.
o Vacated homes and delinquent payments on water and utility bills, forcing
service shut-offs.
^ .Local city staff have varying degrees of experience in the administration of
CDBG funds from little to no experience to past administrative experience.
^ Additional Building Officials might be necessary in some communities, but in
general new staffing needs have not been identified as a local priority.
^ Communities need assistance identifying the name and contact of property
owner/lender data. In abandoned, straw buyer homes with non-local lenders,
calls are frequently not returned.
^ Sheriff sales/County level data not always available, up to date or complete due
to increased volume making it difficult to track concentrations and monitor
impacts.
COMMUNITY SUMMARIES
Isanti (55040)
^ 203 properties in foreclosure. 74 occupied. 67 vacant, 49 empty lots, 2 -status
unknown and I I outlots as of 11.19.08.
^ 32 partially constructed homes city-wide.
^ Approximately 20 foreclosed homes in historic core neighborhood.
^ Others in newer sub-divisions including Villages on the Rum all Additions /Phases
where 60 of 315 platted in foreclosure, including 25 half built homes and Isanti Hills all
phases where 26 of 63 final platted in foreclosure.
^ Have seen copper stripping, homes filled with mold, homes that have been left in a
horrible state of disarray with carpets being soiled, walls destroyed, appliances left with
decomposing food, items left from living in the structures, face plates, lighting. Some
homes were not finished.
^ Vacancies increasing a lot in past 3 weeks.
^ City Staff started meeting on a frequent basis on the foreclosure situation in early 2008.
Group convenes every 2 weeks -City Administrator, Finance Director, CDD, Planner,
Building Official, Chief of Police, Community Officer, and City Attorney. Staff monitoring
the properties by visiting the County Recorders office periodically to address properties
that are in foreclosure and where in the stage of foreclosure. Information is brought to
larger team that works on securing the properties, patrolling to prevent blight and
vandalism, mowing of the properties (now snow removal), and trying to find ownership
in matters related to'the properties.
^ Communicating with owner/lender is very challenging. Getting information from County
is one step, then trying to find actual person to contact and have calls returned often
takes more than a month if call are ever returned. Difference in very responsive local
bank -Community Pride Bank.
^ Publishing information and resources through community newsletter and website
^ Best policing has come from concerned neighbors interested in preserving homes.
^ .City staff does have past CDBG administration experience.
Big Lake (55309)
^ 159 total foreclosures to date in 2008 (up from 150 in all of 2007).
^ Foreclosures are spread throughout 8 neighborhoods in town. The average price of
homes in these neighborhoods is estimated to be around $189,000.
^ Building officials estimate that roughly 70% of all foreclosed homes are unoccupied.
^ High level of interest in NSP funds.
^ City staff does have past CDBG administration experience.
Buffalo (55313)
^ Most foreclosures occurring in 4 newer sub divisions. A number of these units have
been built but never lived in.
^ 12 or so foreclosed homes throughout town in core neighborhoods.
^ Currently 146 registered vacant properties.
^ Number of for-sale units converted to rental, however maintenance and upkeep is a
serious concern.
^ Enforcing ordinances to ensure properties are maintained is an increasing need and
expense.
^ Passed new rental ordinance with fee to register properties in order to track actual
ownership of property.
^ Passed utility ordinance to allow city to recapture back fees when tenant/owner leaves
to have fees assed back to title holder.
Saint Michael (55313)
^ 147 units currently in foreclosure city-wide. Small portion of town in 55313 zip code
(mostly Buffalo) with limited foreclosure impacts in almost all rural area - no new
projects or municipal infrastructure extending to this small part of town.
^ 3 newer subdivisions in 55376 zip code impacted, with approximately 18 half-built
homes.
^ 100+ homes in neighborhoods with approximately 10 homes valued under $180,000.
^ No past experience with administration of CDBG funds.
^ No new staff needs identified.
Elk River (55330)
^ 148 Foreclosures in Elk River through September 16, 2008.
^ 24 or more homes in older neighborhoods in foreclosure. Price range: $ 125,000 -
$200,000.
^ Large number of foreclosures traced to new sub division development - 15 units in two
developments -Elk River Station and Trott Brook Crossing.
^ No known rental properties in foreclosure.
^ Have seen a shift from for-sale to rental-occupied as home sales/market has suffered.
^ City staff has past CDBG administration experience. Is not anticipating any new staff
needs to respond to foreclosure impacts.
Otsego (55330 and 55362)
^ Interest in using NSP funds to address 12+ foreclosed units that have suffered
substantial water damage due to vacancy.
^ Large number of foreclosures traced to I new sub division development where 88
individual lots were foreclosed on.
^ High number of foreclosures located in 2 new higher-end developments.
^ 30 or so duplex/4-plex/6-plexes where at least I unit is in foreclosure. Concern to
maintain/prevent damage until units begin to resell.
Monticello (55362)
^ 3 partially developed new subdivisions with approx 25% of all built homes in foreclosure.
^ Substantial devaluation of homes in current market. All units now under $180,000.
^ No known foreclosures on rental properties.
^ I I foreclosed homes in core downtown all likely under $ 180,000.
^ Staff has had some experience working with CDBG funding.
^ Additional staffing has not been identified as a need at this point.
Princeton (55371)
Zimmerman (55398)
^ 149 total foreclosures through September 16, 2008.
^ Approximately 40 homes in older neighborhood (Approx. 10 blocks), where most
homes are under $ 180,000.
^ Increasing numbers in new SF Townhomes - Southside Villas development where 40
homes out of 150 in foreclosure. All properties under $ 150,000.
^ S.W. Wold - Huntington development 12 out of 100 homes in foreclosure all priced
around $ 130,000.
^ Maturando Woods - 7 of 20 homes in foreclosure, 6 are half built with 25% or more
price reductions (from $400,000 selling now at $235,000). Homes in various stages all
framed, and shingled, 3 dry wall, none completely sided.
^ Meadows North - 7 of 30 homes in foreclosure. Priced around $220,000.
^ The Meadows - 15 of 200 units in foreclosure. Priced at $ 160,000.
^ Mayfield I st edition - 40 + homes in foreclosure. Mixed income development with
home prices around $220,000, and a handful under $ 180,000.
I. Low
a. Downpayment & value/affordability gap assistance
b. Local lender & realtor partners
c. Marketing
d. Designated city/HRA staff or contract CDBG administrator
2. Medium
a. Demolition
b. Land bank
i. Land bank for development by others
ii. Land Bank for Other City Purpose
c. Property acquisition & pass through
3. High
a. Multiple Partnerships
i. Area CDC's
ii. Local HRA
iii. Community groups
b. Comprehensive neighborhood revitalization
i. Multiple neighborhood-wide approach
ii. Energy audits & improvements
iii. Exterior improvement program
iv. Neighborhood organizing
c. Property Development
i. Property inspection
ii. Scope of work write up
iii. Prepare bid packages/bid out
iv. Construction monitoring and management
d. Marketing
i. Property management
ii. Homebuyer training
iii. Homebuyer qualifying
e. Alternative ownership models
i. Land trust
ii. Habitat for Humanity
iii. Contract for deed
iv. Lease to own
~:~
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The following foreclosure recovery activities and resources provide community leaders with a
description of the types of financing programs currently available to help individual homebuyers
and developers. Using these and other resources GMHF can help local communities in designing
geographically targeted initiatives specific to local circumstances that will achieve the greatest
impact and leverage.
ACQUISITION & REHAB
FHA 203 k
These loans are made by approved FHA lenders to individual borrowers or qualified non-profits.
The program allows the borrower to get just one mortgage loan, at a long-term fixed or
adjustable rate, to finance both the acquisition and the rehabilitation of the property in one loan.
If a nonprofit is the borrower they can use the loan to buy and rehab a property and then
transfer ownership to glow/moderate income buyer who then assumes the mortgage. The 203k
program has been used in partnership with state and local housing agencies and nonprofit
organizations who have combined the FHA 203k loan with other financial resources, such as
HUD's HOME, HOPE, and Community Development Block Grant Programs. HUD encourages
use of this program when purchasing FHA foreclosed homes that need rehab.
More info at: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
Greater Minnesota Housing Fund (GMHF)
GMHF has loan funds available at below market interest rates that can be used for
predevelopment, acquisition/rehabilitation, new construction, adaptive reuse or tax credit bridge
loans.
More info at: www.gmhf.com
HOMEOWNER FINANCED REHAB
FHA Title I -Rehab Loan
This rehab loan program is accessed through private lenders but is insured by FHA. The
program allows. individual borrowers to access up to $25,000 (20-year term) generally at or
near market interest rate but rates can be negotiated between the lender and the borrower.
For single family homes funds can be used for alterations, repairs and site improvements. For
multi-family structures funds can only be used for building alterations and repair. Title I loans can
be used in connection with a 203k Rehabilitation Mortgage.
More info at: http://www.hud.gov/offices/hsg/sfh/title/ti abou cfm
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Compiled by Greacer• Nfrnriesata Housing Fund. Navernber 2 i, 2008.
Streamlined 203(k) -Limited Repair Program
FHA's Streamlined 203(k) program allows homebuyers to finance up to an additional $35,000
into their mortgage to improve or upgrade their home before move-in. This program is
particularly useful for homes who may not need a lot of repair allowing homebuyers quick
access to funds to pay for property repairs or improvements, such as those identified by a home
inspector or FHA appraiser. Any FHA-approved lender may originate a Streamlined 203(k)
mortgage.
More info at: http://www.hud.gov/offices/hs~/sfh/2031c/203kslrp.cfm
American Dream Downpavment Initiative (ADDI
ADDI helps first-time homebuyers with downpayment and closing costs however it can also be
used for rehabilitation carried out in conjunction with the home purchase. ADDI assistance is
capped at $10,000 or six percent of the purchase price of the home, whichever is greater. To
qualify buyers must be first-time homebuyers with incomes not exceeding 80% of area median
income.
More info at: http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
END LOAN FINANCING
FHA 203b
This loan is widely used by first time buyers because it has a fixed rate, low downpayment
requirements (which can be a gift or from a relative or local housing agency) and closing costs
can be wrapped into the mortgage. 203b loans are funded by local FHA approved lenders and
insured by FHA.
More info at: http://www.fhatoday.com/2036.htm
Minnesota Mortgage Program
The Minnesota Mortgage Program (MMP) is a statewide first time homebuyer loan program. The
program offered by Minnesota Housing through a network of participating lenders offers low
fixed interest rate Ist mortgage financing to eligible homebuyers statewide.
More info at: http://www.mnhousing.gov/consumers/home-buyers/loans/MHFA 000445 aspx
m
Compiled by Greater Minnesota Housing Fund. November 2i, 2D08.
Community Activity-Set Aside Program (CASA~
The (CASA) program is another low/mod Ist mortgage financing program offered by Minnesota
Housing. In addition to low interest, fixed rate Ist mortgage financing buyers are also eligible for
to apply for MN Housing programs that provide entry cost assistance.
More info at: http://www.mnhousing.gov/consumers/home-buyers/loans/MHFA 000469 aspx
HUD -Good Neighbor Next Door program
HUD's Good Neighbor Next Door Initiative is designed to encourage neighborhood renewal by
providing law enforcement officers, firefighters, emergency medical technicians and teachers an
opportunity to purchase homes. HUD provides a fifty percent discount off the list price of
eligible properties. Eligible properties are typically those with FHA loans that have gone into
foreclosure so this could work well with NSP funds.
More info at: http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndabot cfm
Lease Purchase & Contract for Deed
Some communities including one CDC in Minneapolis are developing Lease Purchase and
Contract for Deed models as a way to assist buyers purchase REO properties after they are
rehabbed. While program designs vary most require that buyers have 12-months of steady
employment, and must demonstrate they could be mortgage ready within a 3-5 year time frame.
These programs are more hands so may require multiple partners to provide financial
counseling, homebuyer education classes and other support services.
More info at: htto://www.nw2.org/WinningStrategies/display asp strategy= 1154&offset-6
DOWNPAYMENT ASSISTANCE
Homeownership Assistance Fund (HAFT
Buyers who meet eligibility criteria can access programs through MN Housing that provide up
to $3,000 to help borrowers with down payment or closing costs or monthly payment
assistance of up to $75 per month to help pay a portion of the monthly mortgage payment in
the early years of the mortgage
More info at http://www.mnhousing.gov/consumers/home-buyers/loans/MHFA 003407 aspx
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Compiled by Greater Minr~esoTa Nausin~ Fund. PEaverrri}er 21, 2C1(?8.
HOME Homeowner Entry Loan Program (HOME HELP
MN Housing can provide qualified homebuyers an interest free; deferred loan to assist with the
purchase of their home. The loan requires full repayment of the loan amount if in the first five
years the individual sells or does not occupy the home as their primary residence. After the first
five years, 30% of the initial loan amount is due on sale or upon maturity of the first mortgage.
http://vvww.mnhousing$ov/consumers/home-buyers/loans/MHFA 003407.aspx
Greater Minnesota Housing Fund (GMHF)
Communities could request program specific downpayment funds from GMHF. Typically
downpayment would be structured as a grant of up to $2,000 for GMHF eligible borrowers.
GMHF also offers Employer Assistance Housing (EAH) matching funds to local employer
contributions. More info at: www.gmhf.com
American Dream Downpayment Initiative ADDI)
ADDI helps first-time homebuyers with downpayment and closing costs, ADDI assistance is
capped at $ 10,000 or six percent of the purchase price of the home, whichever is greater. To
qualify buyers must be first-time homebuyers with incomes not exceeding 80% of area median
income.
More info at: http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
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Compiled by Greater Minnesota Housing Fund, hiovember 21, 2008.