Like most government agencies, the U.S. Department of Housing and Urban Development, which administers the Federal Housing Administration, doesn’t get a lot of credit for doing things right. Which is probably why, when it does get on track and offers the kinds of programs that are useful to the marketplace, the agency often escapes notice. Besides, it’s easier to criticize than it is to commend.
The FHA’s First Look is one those programs that gets overlooked, but it shouldn’t because it successfully helps to restore homeownership to communities badly hurt by the ongoing recession, deep unemployment and rampant foreclosures.
In 2008, HUD established the Neighborhood Stabilization Program (NSP) to help communities that had suffered from foreclosures and abandonment. Using NSP funds, states, local governments and nonprofits purchase and redevelop abandoned and foreclosed residential properties that will eventually be put in the hands of new owners.
Good programs, whether government, corporate or individual, aren’t static — they evolve as situations change, and this has been the case with the NSP, which in July 2010 aligned with the FHA’s First Look Sales Methods to provide NSP grantees an exclusive option to buy HUD homes before they are marketed to other purchasers.
The alignment was formalized under the appellation, First Look, and the concept was to more hastily confront property abandonment in struggling communities hurt by the foreclosure crisis.
In September 2010, First Look evolved once more to become the National First Look Program as it became a public-private partnership. In collaboration with Fannie Mae and Freddie Mac, First Look gives communities and nonprofits participating in NSP an opportunity to purchase bank-owned residences in particular neighborhoods so these properties can either be rehabilitated, rented, resold or demolished.
By the end of the 2010, First Look transferred more than 3,000 homes back to private ownership, said Sarah Greenberg, senior manager for community stabilization with The NeighborWorks America (NWA), a Washington, D.C.-based nonprofit housing group that supports a network of 235 independent nonprofits. NWA, itself, has been an active participant in First Look, having transferred about 1,000 homes through its network.
We all tend to look at the mortgage/housing crisis as acts of individual heartbreak or folly depending on how cynical we are, but individual neighborhoods, many of them in low-income areas, were particularly plagued by the housing crisis. Cities, many working with nonprofits, have been diligently working to restabilize these neighborhoods and do so by gaining ownership, rehabilitating and then selling homes to selected new buyers.
When the NSP was unveiled, problems immediately arose. The most serious being the homes check-marked by nonprofits and cities were also being targeted by investors and flippers, whose ownership, often brief, wasn’t going to bring stabilization to neighborhoods. Hence, the need for communities to get a "first look."
I know what you’re thinking: another boondoggle by government agencies and do-gooders that keeps potential investments out of the hands of free enterprise investors. That’s not the case. It does no one any good for a foreclosed home to sit around while some bureaucracy decides its fate. NSP grantees have 24 to 48 hours to express an interest in pursing a specific property and five to 12 business days to conduct inspections, establish costs to repair, and make an offer.
This tight time frame has forced even the notoriously slow decision-making nonprofits to act in real-investor time.
"First Look is a good program," said Lautaro Diaz, vice president for housing and community development at the National Council of La Raza in Washington, D.C. "The problem was for the nonprofits to get their sequencing, to be able to participate quickly enough. You have to act or the property will pass through to someone else ready to buy.
"That orchestration, a nonprofit’s ability to do the analytics and purchase, has been the constraint on this program. The nonprofits didn’t need five days — they needed 25 days. But, real estate has to move — you don’t want to impede, you want to support."
La Raza has recently established corporate partnerships to acquire and rehab REOs, and is actively going through the First Look lists, seeking opportunities to convert the REOs into affordable housing.
It’s not a complicated system, NWA’s Greenberg said. "Our network uses a simple data system called REOMatch (developed by the National Community Stabilization Trust). All the local groups have to do is log into that system on a daily basis and they will see a listing of properties in their target areas. They’ll know what the properties will cost; they can go out and take a look; and then there’s a short window to let the trust know they are interested."
Homes are purchased directly from the servicers, and much of NWA’s network uses local brokers to get the transactions accomplished.
The Great Lakes Capital Fund of Lansing, Mich., has been involved low-income housing for the past 18 years, mostly as a nonprofit syndicator involving low-income housing tax credits. In addition, it also has a number of nonprofit subsidiaries that act as pass-through entities for the First Look program.
"As the name implies, we do get a first look," said Tom Caldwell, an underwriter with GLCF. "The idea behind it is to try and get these properties out to nonprofit organizations that aren’t looking to flip them. The nonprofits are seeking to find a property, get it renovated using NSP funds, and put it back into homeownership so that it will stabilize the community."
GLFC has been working the First Look program in such medium-sized Michigan cities as Grand Rapids, Kalamazoo, Lansing, Muskegon and Ypsilanti.
"The homes are mostly in urban core neighborhoods," Caldwell said. "A lot of the properties we’ve seen had subprime mortgages. If the homes can be turned around with good, solid homeownership — which is what our buyers/partners want to see happen — it is a big win for the neighborhoods."