Tuesday, Nov. 18, 2008 | San Diego plans to spend $9.4 million to help homebuyers purchase foreclosed homes, and buy foreclosed homes itself to rent out to low-income families, as part of a federal grant program intended to stabilize neighborhoods ravaged by foreclosure.
The city, through its Housing Commission, expects to use those grants from the Housing and Urban Development in two main ways: to fund between 75 and 92 first-time homebuyer loans on houses that were previously foreclosures and to rehabilitate 30 rental homes for low-income tenants.
Those potential 122 houses that would be purchased with the help of grants represent about 2 percent of the 6,111 homes in the county that went through the entire foreclosure process between July 2007 and September 2008, according to the agency’s report. Under the plan, the funds would be focused in some of the city’s hardest-hit neighborhoods, including Golden Hill, North Park, City Heights, Barrio Logan, Encanto and Nestor.
Due largely to the plan’s limited scope, some bankers, community members, government officials and real estate professionals questioned its effectiveness after a presentation Monday by Housing Commission officials to the City-County Reinvestment Task Force. The task force ultimately voted Monday to support the plan, with reservations and suggestions for increasing community participation in the process. The plan will go to City Council for approval Tuesday afternoon.
The tension closely mirrors the nature of the foreclosure response by governments of all levels. As banks and governments on various levels release plans on a near-daily basis to address the impact of widespread foreclosures, the details of those various plans are difficult to keep straight.
Governments are allocating money to buying homes that have been foreclosed and vacated in hopes of reversing the devastation wrought by foreclosures — vandalism, squatters, disrepair and plummeting home values. But critics say those plans, like this pot of money from federal legislation passed this summer to stimulate the housing market and the economy, don’t go nearly far enough to address the foreclosure crisis.
Against a foreclosure force so huge, a plan to stabilize neighborhoods by rehabilitating and taking off the market 100 to 130 homes seems dramatically outmatched, some task force members said Monday.
Rick Gentry, Housing Commission chief executive officer, acknowledged that using the funds in this way doesn’t address an across-the-board foreclosure problem in the city of San Diego. The money can’t be used, for example, to help distressed homeowners stay in their homes. But HUD made the $9.4 million available, contingent on a tight deadline, and if the city doesn’t submit a plan for using that money by Dec.1, it would lose it.
“We’re trying to make sure we don’t blow this one,” Gentry said. “We’re trying to make sure we get this money in the door.”
Richard Lawrence, a longtime local affordable housing advocate, was daunted by the difference between the scope of the Housing Commission plan and the size of the foreclosure problem. He suggested that the community redevelopment agencies like the Southeastern Economic Development Corp., the board of which Lawrence was recently elected to, chip in some money to make the $9.4 million go further.
“I must confess to you that I am disappointed,” Lawrence said. “We’ve got to find ways to leverage these monies.”
The Housing Commission’s draft plan envisions two main uses for the grant money. HUD mandates that one-quarter of the money be spent to assist households earning less than 50 percent of the region’s median income, which is $39,500 for a family of four.
For that goal, the agency plans to purchase and rehabilitate about 30 foreclosed homes to rent out through its Section 8 program to families in that income bracket. Gentry said the commission hopes to ask HUD to give those tenants the permission in a few years to purchase the home from the commission. Houses in this part of the program would have at least three bedrooms and would cost the agency about $300,000 to purchase and rehabilitate.
The rest of the money, the majority, would go to first-time homebuyer assistance programs. A homebuyer would first find a foreclosed house to purchase in one of those target neighborhoods. The homebuyer would obtain a mortgage privately for 70 percent of the purchase price. Then the homebuyer would approach the Housing Commission to pitch in 27 percent of the price, plus 3 percent for closing costs. The Housing Commission would require that the lender be willing to sell the house for a discount of at least 5 percent from the market value according to a recent appraisal. And whatever the house would cost to rehab would also be rolled into the purchase price.
Depending on how much of a discount the Housing Commission is able to negotiate with the lenders, the $6.4 million designated for this part of the program could assist 92 buyers on homes priced at $200,000 plus $30,000 to rehab the home. For homes priced at $250,000 plus a $30,000 rehab cost, 75 buyers could be assisted.
Lynn Hastings, a local real estate broker who sits on the task force, said it seemed unlikely that a buyer’s offer would be accepted contingent on the money coming in from the government. She said the winning offers in neighborhoods where low-priced foreclosures are getting competitive are from buyers paying all cash or making a large down payment.
“I’m not sure how the program matches the marketplace,” she said.
Dwayne Crenshaw, executive director of the Coalition of Neighborhood Councils, said the plan falls short of articulating how the Housing Commission will engage with the community organizations dealing with devastated neighborhoods. He asked the task force to reject the plan presented Monday in favor of first figuring out a comprehensive plan, vetted by grassroots organizers, to mitigate the impact of foreclosure around the city. He said it sounded like the city was just “chasing money” in fitting its plan exactly to the HUD application. If taking the time to develop a reasonable solution means that the city will lose out on $9.4 million, so be it, he said.
“Don’t rush to do something that is unimaginative, uninspiring and, frankly, I think, unacceptable,” he told the commission officials and the task force.
But Gentry said the commission will work with community organizations as soon as HUD approves its application and sends the money sometime next spring, he expects.
“We’re simply trying to make sure the city gets some money,” he said. “There’s no conflict between the (HUD) money and San Diego’s problem.”
The same HUD grant program allocated $2.8 million to Chula Vista and $5.1 million to the county of San Diego. Both agencies have proposed similar breakdowns for using 25 percent of the money on acquiring foreclosures for renting to low-income families, and 75 percent of the money for helping homebuyers purchase houses. The agencies are entitled to 10 percent of the grants to administer the program.