After a rocky start, the Neighborhood Stabilization Program (NSP) is slowly gathering steam. A component of the Housing and Economic Recovery Act of 2008 and administered by the Department of Housing and Urban Development (HUD), the first phase (NSP1) of the nearly two-year-old program has sent an infusion of $3.92 billion in federal aid to states and 304 municipalities to help them acquire and rehabilitate vacant and foreclosed properties.

The final two phases of NSP have awarded an additional $3 billion to cities to help shore up distressed communities. NSP2 grantees received their funding earlier this year, while NSP3 funds have not yet started to flow, according to HUD.

The program, while basically good, has some flaws, says James Brooks, program director of Community Development and Infrastructure for the Washington-based National League of Cities. Some cities had trouble effectively targeting strategic properties to purchase and obtaining proprietary financial data held by financial institutions on distressed properties. "Cities really needed more planning time than HUD gave them," Brooks says. Some cities lost their NSP1 funds when they missed the deadline for obligating funds, but, in August, HUD issued a notice to allow cities to recapture the funds.

Some NSP grantees faced competition from speculative investors who bought large blocks of real estate-owned (REO) properties sight unseen and made minimal improvements before cities could even look at them, says Tom Streitz, Minneapolis Housing Policy and Development director. "It was also difficult for cities to identify the ownership of properties when many of them were owned by multiple syndicated investors," Streitz says.

In October 2008, Minneapolis agreed to participate in the pilot for the First Look Program from the Washington-based National Community Stabilization Trust (NCST), a consortium of non-profits that facilitates the sale of REO properties from financial institutions to cities and local housing organizations. The First Look Program gives NSP grantees an exclusive opportunity to look at and purchase foreclosed properties at favorable prices before marketing them to the public.

Minneapolis First Look was key to foreclosure recovery efforts in Minneapolis and was a factor in the city obtaining NSP grants in March 2009 and March 2010, Streitz says. "[Minneapolis was] chosen for the pilot because we've always had a stable of good, non-profit developers," Streitz says, adding that the city has bought more properties under NCST programs than any other city in the country. Today, First Look includes more than 100 cities.

Cities have learned some lessons from the early stages of NSP, Brooks says. "We've learned that $7 billion in NSP funding could not solve the existing crisis in home mortgage foreclosures," Brooks says. "It could only be a catalyst to leverage private sector dollars."

Annie Gentile is a Vernon, Conn.-based freelance writer.

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