As I've reported in the past, Memphis and Shelby County are set to receive about $12 million in HUD Neighborhood Stabilization Funds through the Housing and Economic Recovery Act (HERA).
The money has several stipulations: It has to be used in areas hardest hit by foreclosures, for starters. It can be used to buy foreclosed property, renovate or rehab foreclosed property, and create land banks for redevelopment.
But it cannot be used to prevent foreclosures.
And with the credit market in the shape its in, rehabbing foreclosed property for sale or redeveloping property, again, for sale, might not be the most successful solution.
In order to meet the stipulation regarding the hardest hit areas, the city and county used Chandler Report data to find the "top 10" zip codes with the greatest percentage of foreclosures, as well as those zip codes with the highest percentage of homes financed by a subprime mortgage-related loan.
But a recent Op-ed from Planetizen suggests that by concentrating assistance in the hardest-hit areas, few places will be saved.
Charles Buki, a principal at a Virginia-based neighborhood planning firm, says that local governments should focus on the hardest-hit areas, but also those areas where they have the greatest chance for success.
He says:
"HERA requires that resources go to areas with the most foreclosures, thereby attaching dollars to the markets where demand is weakest. Not surprisingly, with some exceptions, these are the weakest areas of the weakest urban centers, and almost precisely the geographies where we community developers have been working so hard to turn things around for so long. ...
"The tools we have with HERA are in actuality little different than those we have been using. The conclusion: same places, same indicators, same constraints, same tools, same outcome."
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The city is kind of limited by the HUD guidlelines. They say we have to use the money in places that 1) have a history of high foreclosures, 2) high rates of high cost loans, 3) 25% of the money has to be used in areas 50% and under the median household income, 4) and where it can do the most good.
1,2, and 3 tie the cities hands. 4 gives you some leyway but not much. People are cognizant that it would be nice to work in places where the foreclosure bomb hasn't gone off, but the HUD rules don't make that easy.
Plus, think of the scale of the problem. There have already been 400 homes foreclosed in Frayser this year. Let's say you can buy houses in frayser for an average of $20,000. Then getting them back up to code, fees, etc the total cost gets you up to $40,000 per house. In a perfect world you could do 275 houses in frayser. That doesn't even keep you even there. If you want to do some of this program in Raliegh or Hickory Hill, the price of homes is higher, so there will be few homes the program will be able to do.
Half of all home sales in America today are investors buying up foreclosures. Memphis is poor and in dire need of affordable rental or rent to own housing. If we could get a couple hundred affordable and decent rental houses back on the market that's about the best case scenario with the resources available.
I read through the op-ed. People are burrowing down into these 10 zip codes here to find mid range neighborhoods where you can do the most good and stabilize them. Yet the larger problem is is that we are in the early stages of a severe recession. Many people have moved from ARM's into fixed rate loans, but they are still going under. In addition, you have the spectre of Hedge Funds suing banks and mortgage companies for refinancing loans.
I wish we could recognize that were are in the early stages of a massive asset deflation wave. in a perfect world we could refinance the mortgages so that people didn't spend more than 31% of their income on mortgage payments, but at this stage we can't. In a year it may be different. housing values will have continued to decline and almost every large financial institution will have been nationalized by the US government. Maybe then we can reset the housing market to realistic values.
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