neighborhood stabilization program

OVERVIEW
The City of Philadelphia’s Neighborhood Stabilization Program (NSP) is an innovative opportunity to turn vacant, foreclosed properties into owner occupied dwellings. The City will receive $16.8 million from the U.S. Department of Housing and Urban Development (HUD) to support this effort, which will be managed by the Redevelopment Authority of the City of Philadelphia (RDA).

Philadelphia’s NSP will focus on select neighborhoods (see map below) throughout the City. These neighborhoods were identified by the City’s Office of Housing and Community Development (OHCD) through a comprehensive process taking into account historic foreclosure data, indications of predatory lending, and the impact of vacant foreclosed homes on the value of residences in the surrounding neighborhoods.

OHCD’s Neighborhood Stabilization Program Application is available online in English and Spanish.

The NSP compliments other initiatives focused on the foreclosure crisis. The City’s first priority is to prevent foreclosure by encouraging residents to participate in the Residential Mortgage Foreclosure Diversion Program. The NSP will work with properties that become vacant due to foreclosure. All buyers of NSP homes will also complete eight hours of mortgage counseling.

HOW THE PROGRAM WORKS

Developer Partners
Through a series of Request for Qualifications (RFQs) the RDA will select qualified developers (both for-profit and nonprofit) who will acquire the foreclosed homes, renovate and sell them to credit worthy owner occupants. The developer partner’s compensation will take the form of a developer fee to be paid on an incentive basis.

All developer partners will be expected to have knowledge of neighborhood conditions. Community Development Corporations (CDC’s) and other non-profit organizations are encouraged to participate, as are for-profit developers and joint ventures.

Property Purchase
The RDA, working with its development partners, will negotiate the price of the vacant, foreclosed properties with lenders. Properties will be purchased at a discount from the lender’s stated market value.

The RDA is working with several national lenders that hold large portfolios of foreclosed properties. RDA will help developers acquire and redevelop those properties with the highest potential for neighborhood impact.

Financing and Project Economics
In the initial phases of this program, RDA will offer financing for the acquisition, rehabilitation, and marketing using HUD’s NSP funds. With program maturity and improvement in the credit markets, developer partners will be encouraged to secure private financing and commercial lenders will be asked to participate.

The RDA expects that the cost of acquisition, renovation, marketing, and developer compensation will exceed the sales price given the need to sell quickly to owner-occupants. This shortfall will be funded through a subsidy secured by a second mortgage. This is a common feature of federal programs designed to insure the continued affordability and prohibit inappropriate profit making.

Upon sale of the home, all funds advanced through the NSP, less the subsidy, will be returned to the RDA and re-lent, furthering the program goal of investing in neighborhood stabilization. The available fund balance will decline over time as the cumulative subsidy invested in the neighborhoods increases.

Construction
Once the property is identified, the developer partner will propose a plan and cost estimate to correct code violations; lead-based paint and environmental hazards; mechanical and physical deficiencies; and to provide energy star and “green” enhancements. These, as well as property upgrades and improvements, will increase value and marketability.

The RDA will review and approve the developer partner’s proposed rehab plan and check for accurate job costing. Throughout the construction/rehab phase, the RDA will monitor compliance with the pre-approved plans and advance funds based on work in place.

Buyer/Occupant Eligibility
Twenty five percent of the NSP funds are targeted for low-income families (under 50 percent of Area Median Income), and the balance is targeted to owner occupants with income not exceeding 120 percent of the Area Median Income. All homebuyers must be owner-occupants.

A rental program, targeting lower-income households, will be implemented later in 2009 after the RDA pre-qualifies responsible landlords.

1234 Market Street, 16th Floor, Philadelphia, PA 19107,Tel: 215-854-6500; FAX: 215-854-6603

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