Vacant Next Door
IRMO, S.C. — The federal government is spending $4 billion to buy and fix up foreclosed homes despite concerns over how the money is being distributed, questions about oversight and fears that the program amounts to a windfall for banks that repossessed the properties.
Now, even before the first dollars are spent, another $2 billion is on the way under the economic stimulus package signed this week by President Barack Obama.
Last month, the Department of Housing and Urban Development signed off on hundreds of grants to all 50 states. The Neighborhood Stabilization Program, as it's known, was passed last year as part of a housing-rescue plan that was regarded at the time as the most significant housing legislation in a generation.
But critics have assailed the program for the lack of money it will send some hard-hit communities and the discontent stirring among residents who want a say in what happens to their neighborhoods.
"What houses are gonna be involved? We still don't know that and we're a month away from the funds arriving," said Mike Aaron, president of the Livingston Avenue Area Commission, a group in a foreclosure-ridden area of Columbus, Ohio. "That's what's making us uneasy right now."
The total amount coming into Ohio, for example, is $258 million, and Columbus is getting $23 million of that. Those figures do not include new money from the stimulus package, and HUD has said it has not yet decided what the guidelines for the new grants will be.
Aaron said Columbus has rebuffed his group's attempts to talk about the best ways to use money, which already has been awarded to the state.
"We need to be involved in the process," said Aaron, who is pressing for an oversight board comprised of city officials and residents.
And then there's back-biting about who gets how much.
The first round of money is being divvied up based on the number and percentage of foreclosures, number and percentage of homeowners behind on their mortgages, and the concentration of subprime mortgages.
While the formula sounds fair, some of the results aren't. California and Florida are getting more than $500 million in federal help, even though California has 500,000 foreclosures — around twice the number as Florida.
Vermont, meanwhile, is getting the minimum of $20 million, even though the state had less than 150 foreclosures last year and the lowest foreclosure rate in the nation, according to RealtyTrac Inc.
Some city and county officials also are questioning the government's math.
Almost one in 10 houses in Merced County, Calif., are in foreclosure, one of the highest rates in the country. Yet the county will get just $2 million of the money going to California.
The city, which has a foreclosure rate of 12 percent, will get just $1.4 million.
"Someone stopped me on the street and said, 'Oh, good, you got the funding. So what can you do with this money? Buy like four homes?' " city housing manager Masoud Niromaud said, adding that there are more than 1,300 homes in foreclosure in Merced. "Seems that HUD could paid more attention to the formula — ran it a couple of times. They didn't do that."
Economists say lenders surely will benefit from the plan, though it doesn't include enough money to be considered a significant backdoor bailout for banks.
"In terms of bailing out lenders, it's hardly the biggest thing out there, but surely there will be cases where the land purchases will be in least in part to help politically connected lenders," said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington-based think tank.
In many cases, government officials plan to dole out the money to nonprofit organizations and smaller government entities that will purchase homes.
Critics and local housing officials are shaking their heads over the carte blanche grantees have in how they spend the federal funds. One South Carolina county said it would consider proposals to put homeless or HIV/AIDS patients in foreclosed homes eligible for the grant, while officials in Florida's Miami-Dade County said they plan to snap up foreclosed apartments with grant money despite staunch public comment against it.
Many of the proposals called for renting out the homes to low- to moderate- income families.
On the streets of neighborhoods pockmarked with vacant houses, many residents said they'd welcome new neighbors no matter how they got into the homes.
"I would want to put somebody in it, whether they're renting it or not. That's a house that somebody could be in," said Cheryl Poole, a 51-year-old Irmo resident worried about home values and the empty house across the street from her one-story ranch home.
On the other extreme is Debra Oakley, a 55-year-old woman who said she isn't so sure she wants a new neighbor.
The two houses to the left of her home are vacant, including one that nonprofits are being encouraged to buy using stabilization grant money.
"I've often wondered about what kind of people would move over there," said Oakley. "I like it just like that: vacant."
Susan Popkin, a researcher at the nonprofit Urban Institute, said many homeowners have grave concerns about their changing neighborhoods and how that might affect already-declining property values.
In major cities nationwide, tensions have risen recently as federally subsidized renters move from housing projects and violence-ridden neighborhoods to nicer communities in suburban areas.
"The fear is real. The reality isn't," Popkin said. "The thing they're anxious about is what's already happening in their neighborhoods."
That's true in Columbus, where 84-year-old Walt McKinley said he'd welcome any help to rescue his neighborhood.
McKinley, who lives in the city's downtrodden Linden neighborhood, said he worries the spread of foreclosures in his neighborhood will drive up crime and wants the city to use the grant to demolish the house next door to his, which has been vacant since it was foreclosed upon and the owners abandoned it over the summer.
"I told 'em at work that if possible, I would even drive a bulldozer myself and bulldoze it," McKinley said. "I would be happy to."
But critics say there's no guarantees that McKinley's neighborhood or other hard-hit communities will benefit from the grants. No one is tracking just how the money will be spent and grantees have been tightlipped on their plans.
HUD will monitor how states and cities spend neighborhood-stabilization money, but leave it to local governments to monitor how passthrough grants are used by nonprofits and other, smaller government groups.
Many Republicans opposed the first round of stabilization grants and don't want to increase the program. They say additional money will give more slush funds to disreputable nonprofit groups.
"Instead of trying to work out troubles in the existing funds, we're basically doubling the size of the program and potentially doubling the size of the problem, said Frederick Hill, spokesman for the Republican Oversight and Government Reform Committee, about the House's plan to double neighborhood stabilization grant money.
Some economists also have expressed concerns over a lack of oversight.
"The record of housing authorities are not very good. It's certainly reasonable to be concerned that the money will end up going to politically connected lenders and developers and not do very much for communities," Baker said.