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In response to the rising number of home mortgage foreclosures the 110th Congress passed the
Housing and Economic Recovery Act of 2008, P.L. 110-289, formerly H.R. 3221 (HERA), which
was signed by the President on July 30, 2008. Title III (Emergency Assistance for the
Redevelopment of Abandoned and Foreclosed Homes) of HERA resulted in the creation of the
Neighborhood Stabilization Program (NSP), which allocates additional federal financial
assistance to all fifty states and to local governments with high concentrations of foreclosed
homes, subprime mortgage loans, and delinquent home mortgages.
Many economists contend that increased numbers of foreclosures contribute to neighborhood
destabilization, trigger housing price depreciation, and result in declining state and local revenues
and subsequent service cutbacks. Although Congress did include provisions in HERA that
reformed the mortgage financing industry, this report will focus on legislative provisions of the
act that allocate block grant assistance to state and local governments to aid them in acquiring,
rehabilitating, and reselling the growing supply of foreclosed and abandoned housing. Title III of
HERA uses the framework of the Community Development Block Grant (CDBG) program to
channel an additional $4 billion in assistance to state and local governments. It should be noted
that Title III of HERA overcame a veto threat by then-President Bush who contended that the
assistance would result in the rescue of lenders and speculators. The act also drew criticism from
fiscal conservatives who argued for cuts in other programs to offset the $4 billion appropriation.
With the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5),
Congress appropriated an additional $2 billion for NSP activities (NSP 2), and revised key
elements of the program as a result of a number of issues raised during the early implementation
of NSP. Funds appropriated under ARRA for the NSP will be awarded competitively. In addition,
non-profit entities will be allowed to be direct recipients of funds. This is a substantial deviation
from NSP funds appropriated under HERA, which used a formula-based method to allocate funds
only to state and local governments. In turn, HERA allows state and local governments to
designate non-profit entities as sub-recipients of funds. This report will be updated as events
warrant.
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Introduction ..................................................................................................................................... 1
Congressional Action ...................................................................................................................... 1
Housing and Economic Recovery Act, Title III (P.L. 110-289) ................................................ 1
Formula and Allocation of Funds ....................................................................................... 2
Eligible Activities ............................................................................................................... 4
Restrictions, Limitations, and Prohibitions......................................................................... 4
NSP 2: American Recovery and Reinvestment Act, Title XII (P.L. 111-5)............................... 7
Legislative Action ............................................................................................................... 7
Eligible Entities and Distribution of Funds......................................................................... 8
Eligible Activities ............................................................................................................... 8
Protections and Prohibitions ............................................................................................... 8
Policy Analysis.......................................................................................................................... 9
Formula vs. Competitive Grants ......................................................................................... 9
Precedent of Non-Profits Competing Against States and Local Governments................. 10
Administrative Capacity ....................................................................................................11
Limited NSP Funding Covers Small Share of National Foreclosures ...............................11
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Figure 1. Formula Developed by HUD to Allocate $3.92 billion in NSP Funds at the State
Level............................................................................................................................................. 3
Figure 2. Formula Developed by HUD to Allocate NSP Funds Below State Level........................ 4
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Table 1. Allocation of NSP Funds by HUD for FY2008 ................................................................. 5
Table 2. Program Elements of CDBG, NSP 1, and NSP 2............................................................. 10
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Author Contact Information ...........................................................................................................11
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The increasing number of mortgage foreclosures poses a financial threat to local housing markets,
financial institutions, homeowners, and state and local governments. The impact of the
foreclosure crisis on financial institutions and homeowners has been well documented, and has
been the focus of congressional debate in the formulation of policy options. The impact on state,
local governments, as well as neighborhoods, also has garnered the attention of federal policy
makers.
A 2007 report by the U.S. Conference of Mayors projected that in 2008, mortgage foreclosures:
• could displace 1.4 million households from their homes;
• could result in $1.2 trillion in lost property values; and
• could potentially result in the loss of more than $1.4 trillion in projected real
estate tax revenues—important sources of financing local government
operations.1
Given the prospect of declining revenues, falling property values, and blighted neighborhoods
with significant numbers of vacant houses, some local officials have sought relief through
judicial actions.2 In addition, various state and local officials have called for federal intervention.
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In response to the mortgage foreclosure crisis, several bills, including H.R. 3221,3 were
introduced during the 110th Congress that were intended to address specific issues, including:
• reducing the number of homeowners facing foreclosure because of their
inability to keep pace with rising interest rates as their adjustable rate
mortgages, many of them subprime loans, reset;
1 United States Conference of Mayors. The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas. U.S.
Metro Economies. November 2007. Global Insight.
2 For instance, the cities of Cleveland and Baltimore have filed suits against commercial and investment banks.
Cleveland’s suit against 21 commercial and investment banks, some of them involved in securitizing mortgage loans,
contends that the banks violated state law by creating a public nuisance when providing mortgages to homeowners who
could not afford them. This allegedly resulted in a significant number of foreclosures, creating blighted conditions and
reducing property values and tax collections. Baltimore’s suit against Wells Fargo, which was filed in U.S. District
Court of Maryland, Baltimore Division, contends that the bank discriminated against black homebuyers by selling
subprime, high interest loans to them at a higher rate than white homebuyers. See City of Cleveland v. Deutsche Bank,
Court of Common Pleas, Cuyahoga County, Ohio, available at http://www.city.cleveland.oh.us/pdf/whats_new/
ForeclosureDocument1-11-08.pdf, and Mayor and City Council of Baltimore v. Wells Fargo, U.S. District Court of
Maryland, Baltimore Division, Case No. LO8CV 062, available at http://www.relmanlaw.com/
City%20of%20Baltimore%20v.%20Wells%20Fargo%20-%2008-cv-62%20-%20Complaint.pdf.
3 Other measures include S. 2455, S. 2636, and H.R. 5818. H.R. 3221 incorporated much of the language of S. 2636.
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• reclaiming the supply of vacant housing by providing assistance to states, local
governments, and nonprofit entities that could use funds to acquire, resell,
rehabilitate, rent, or demolish vacant properties in an effort to minimize
potential blight and associated problems in neighborhoods with high
concentrations of foreclosed properties; and
• addressing declining tax revenues, particularly property taxes and the
subsequent cutbacks or curtailment in the delivery of public services.
The Senate version of the Housing and Economic Recovery Act (HERA)—which was introduced
by Senator Dodd in the nature of a substitute—initially passed the Senate on April 10, 2008. 4
Subsequently, in an effort to expedite consideration and passage of the measure, the House and
Senate engaged in an amendment exchange, rather than establishing a conference committee.
Despite initial objections raised by the Bush Administration, including the threat of a presidential
veto, the measure passed the House on July 23, 2008. The Senate approved the measure on July
26, 2008. Despite his objections to the provisions of Title III, President Bush signed H.R. 3221
into law as P.L. 110-289 on July 30, 2008.
Title III of HERA—Emergency Assistance for the Redevelopment of Abandoned and Foreclosed
Homes—appropriated $4 billion in supplemental CDBG assistance to states and local
governments based on a formula developed by HUD that differs from that used to distribute funds
under the regular CDBG program. HERA directed HUD to establish an allocation formula that
distributed funds to states and local governments with the greatest need as measured by:
• the number and percentage of foreclosed homes in each state or locality;
• the number and percentage of subprime mortgages in each state or locality; and
• the number and percentage of homes in default or delinquency in each state or
locality.
The measure gave HUD 60 days after enactment to establish a formula for allocating funds to
eligible states and local governments, and an additional 30 days to distribute funds to states and
local governments. Nonprofit entities would be allowed to participate in the program as sub-
grantees, but could not receive a direct allocation of funds.
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Each state and local government that receives funds is required to allocate funds within 18
months of receipt and to give priority consideration to areas and metropolitan communities with:
• the greatest percentage of home foreclosures;
• the highest percentage of subprime loans; and
• the greatest likelihood of facing a significant rise in the number of home
foreclosures.
Although HERA identified specific factors to be used by HUD to develop a formula, it did not
specify an actual formula other than requiring a minimum allocation for each state of 0.5% of the
4 The House version of H.R. 3221 did not include CDBG funds to buy foreclosed property.
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amount appropriated ($19.6 million). On October 6, 2008, HUD published in the Federal
Register a notice on the allocation of NSP funds including information on the formula developed
by HUD to distribute funds. HUD’s weighted formula uses several sources:
• the Mortgage Bankers Association National Delinquency Survey and the
Census Bureau’s American Community Survey;
• the Federal Reserve’s Home Mortgage Disclosure Act (HMDA) data on high-
cost loans at greatest risk of default and foreclosure;
• the Office of Federal Housing Enterprise Oversight (OFHEO) data on home
price declines;
• unemployment data from the Bureau of Labor Statistics; and
• U.S. Postal Service data on home vacancies.
HUD first distributed the $3.92 billion in total appropriations to the 50 states, the District of
Columbia, and U.S. territories, by assigning weights to the factors used in the formula. A total of
nine variables were used in the computation of the formula, including (1) foreclosure starts in the
last six quarters in the state and nation; (2) state and national foreclosure rate per household; (3)
state and nation’s subprime loans; (4) state and nation’s subprime rate; (5) loans in default in the
state and nation; (6) loan default rate in state and nation; (7) loans 60 to 89 days delinquent; (8)
rate of loans 60 to 89 days delinquent; and, (9) state and national vacancy rate in census tracts
with more than 40% of the loans that are subprime or high-cost loans. Each of these nine
variables received the following weights outlined below. It is important to note that both the
percentage and the rate of the state in comparison to the nation was used for each of the variables.
The statewide allocation is calculated using the formula presented in Figure 1.
Figure 1. Formula Developed by HUD to Allocate $3.92 billion in NSP Funds at the
State Level
Includes the 50 states, the District of Columbia and U.S. Territories
Statewide Allocation = $3.92 billion *
{ [ 0.7* (State’s foreclosure starts in last 6 quarters) * (State foreclosure rate) +
National foreclosure starts in last 6 quarters National foreclosure rate
0.15 * (State’s Number of subprime loans) * (State subprime rate) +
National number of subprime loans National subprime rate
0.10 * (State’s number of loans in default) * (State default rate ) +
National number of loans in default National default rate
0.05 * (State’s loans 60 to 89 days delinquent) * (State 60 to 89 day delinq rate) ]
National loans 60 to 89 days delinquent National 60 to 89 day delinq rate
* (State vacancy rate in Census Tracts with more than 40% of the loans High-cost) }
National vacancy rate in Census Tracts with more than 40% of the loans High-cost
Source: Federal Register, Vol. 73, No. 194, Monday, October 6, 2008, page 58344. Available at
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nspnotice.pdf
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Each state’s allocation is further distributed to local governments using the second tier of a two-
step allocation process. The second formula allocates funds based on a community’s relative
share of foreclosures and abandoned homes in the state. Each jurisdiction’s allocation is
calculated as shown in Figure 2.
Figure 2. Formula Developed by HUD to Allocate NSP Funds Below State Level
Local Allocation = (Statewide allocation - $19,600,000) *
[(Local estimated foreclosure starts in last 6 quarters) *
State total foreclosure starts in last 6 quarters
(Local vacancy rate in Census Tracts with more than 40% of the loans High-cost) ]
State vacancy rate in Census Tracts with more than 40% of the loans High-cost
Source: Federal Register, Vol. 73, No. 194, Monday, October 6, 2008, page 58345. Available at
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nspnotice.pdf
Communities receiving a minimum allocation of $2 million receive NSP funds directly, whereas
all other entitlement communities not meeting this threshold must request funds from the state.
Based on a minimum threshold of $2 million, approximately 250 communities, the 50 states, the
District of Columbia, and U.S. territories received direct allocations in FY2008. This is
approximately 900 fewer communities than received grants under the regular CDBG program.
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Under HERA, state and local governments must use funds to:
• create financing instruments that would enable them to finance the purchase
and redevelopment of foreclosed homes and residential properties;
• purchase and rehabilitate foreclosed homes and residential properties for sale,
rent, or redevelopment;
• establish land banks for foreclosed homes; and
• demolish blighted structures.
It should be noted that the recently passed ARRA makes significant changes to the list of eligible
activities. For example, ARRA limits the use of funds for land banks and demolition of blighted
structures. Additional information on changes made by ARRA is provided in the last section of
this report.
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HERA limits the purchase price of a home or residential property acquired by a state or local
government to an amount less than the home’s current appraised market value. The discounted
value should be significant enough to ensure that when the home is sold by the state or local
government the purchaser (homebuyer) will pay below market value for the home or residential
property. Further, when a foreclosed home or property is to be purchased as a primary residence
by an eligible homebuyer, the act limits the price for which a state and local government may
resell such property. The resale price of the home can be no more than the cost the state or local
government paid to acquire, redevelop or rehabilitate the property.
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As originally enacted, HERA required a community or state to reinvest all profits earned during
the first five years following its enactment in additional sales, rentals, redevelopment, and
rehabilitation of foreclosed homes and properties. After the five-year period, all profits could be
recaptured by the federal government and deposited in the U.S. Treasury unless HUD approved a
request to allow a community or state to continue to use funds to finance activities eligible for
assistance under HERA. The five-year recapture provision was eliminated with the passage of
ARRA.
Other NSP provisions of HERA have the same requirements as funds appropriated under the
regular CDBG program. For the sole purpose of expediting the use of funds under HERA,
however, HUD may issue alternative requirements to those governing the regular CDBG
appropriations, except for requirements related to fair housing, nondiscrimination, labor
standards, and environmental review. In addition, HERA:
• prohibits funds from being used in economic development projects involving
the use of eminent domain;
• limits the income of individuals and families who may benefit from assistance
provided by the act to those whose incomes do not exceed 120% of the area’s
median income;
• requires a state and local government to certify that at least 25% of the amount
allocated by the bill will be used to purchase and redevelop housing for
individuals and families whose incomes do not exceed 50% of the area’s
median income; and
• requires that each state receives a minimum allocation of 0.5% of the amount
appropriated.
Table 1 presents data from HUD showing the distribution of Neighborhood Stabilization Program
(NSP) funds by state for FY2008. As of FY2009, all eligible grantees are required to provide a
revised annual plan to HUD.
Table 1. Allocation of NSP Funds by HUD for FY2008
State Name
NSP Funds
Number of Grantees in State
Alabama $41,851,121
3
Alaska $19,600,000
1
Arizona $121,119,049
10
Arkansas $19,600,000 1
California $529,601,774 47
Colorado $53,053,033 5
Connecticut $25,043,385 1
Delaware $19,600,000 1
District of Columbia
$2,836,384
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State Name
NSP Funds
Number of Grantees in State
Florida $541,364,780
49
Georgia $153,037,451
10
Hawaii $19,600,000
1
Idaho $19,600,000
1
Illinois $172,509,479
14
Indiana $151,936,496
13
Iowa $21,607,197
1
Kansas $20,970,242
1
Kentucky $44,382,509 2
Louisiana $38,795,050 3
Maine $19,600,000
1
Maryland $46,370,822 4
Massachusetts $54,806,330 5
Michigan $263,563,262
23
Minnesota $57,783,175 6
Mississippi $46,267,963 2
Missouri $64,859,275
4
Montana $19,600,000
1
Nebraska $19,600,000 1
Nevada $71,934,352
5
New Hampshire
$19,600,000
1
New Jersey
$63,995,490
6
New Mexico
$19,600,000
1
New York
$100,318,608
7
North Carolina
$57,734,781
2
North Dakota
$19,600,000
1
Ohio $258,089,179
23
Oklahoma $32,851,741 2
Oregon $19,600,000
1
Pennsylvania $88,122,808 6
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State Name
NSP Funds
Number of Grantees in State
Puerto Rico
$19,600,000
1
Rhode Island
$19,600,000
1
South Carolina
$49,158,407
3
South Dakota
$19,600,000
1
Tennessee $72,520,649 6
Texas $178,143,197
15
Utah $19,600,000
1
Vermont $19,600,000 1
Virginia $45,691,843
3
Washington $28,159,293 1
West Virginia
$19,600,000
1
Wisconsin $47,976,588 2
Wyoming $19,600,000 1
Insular Areas
$1,144,287
4
TOTAL $3,920,000,000
308
Source: HUD. Available at http://www.hud.gov/nsp
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During the first month of the 111th Congress, Members debated the passage of the American
Recovery and Reinvestment Act of 2009 (ARRA, H.R. 1). ARRA, which was signed by President
Obama on February 17, 2009, as P.L. 111-5, seeks to mitigate the effects of the economic
recession. As initially passed by the House, ARRA would have provided an additional $4.19
billion for the CDBG-based NSP, and would have required $3.44 billion of this amount to be
distributed competitively to non-profits, states and local governments with $750 million allocated
solely to non-profits on a competitive basis. The Senate version of ARRA did not include funding
for the NSP program. On February 13, 2009, both the House and the Senate passed the
conference version of the act, which includes $2 billion for NSP activities. The act gives HUD
until September 30, 2010, to allocate funds to eligible recipients. Recipients are required to spend
at least half of the funds within two years of allocation, and 100% within three years of the date
funds are allocated.
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Under ARRA, funds from the Neighborhood Stabilization Program (NSP 2) are to be distributed
competitively to states, local governments, nonprofit entities and consortia of for-profit and non-
profit entities, partially based on the highest number and percentage of foreclosures. In addition to
need based factors that measure the concentration of foreclosures, ARRA directs HUD to select
eligible entities based on additional factors that measure project quality such as:
• a grantee’s demonstrated ability to carry out proposed activities and expend
funds within two to three years;
• a project’s potential leveraging of other funds, both private and public;
• the concentration of investment needed to achieve neighborhood stabilization;
and
• other factors determined by HUD.
HUD is also given discretion to establish a minimum grant size, is required to publish grant
selection criteria within 75 days of passage of the law, and applications are due to HUD no later
than 150 days after passage of the law. It must obligate funds within one year of ARRA’s
enactment.
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ARRA makes several modifications governing the use of NSP funds, including funds previously
appropriated under HERA. It revises section 2301(c)(3)(C) of HERA related to the establishment
of land banks for homes that have been foreclosed upon. Under ARRA, the establishment and
operation of land banks is included as an eligible activity. Activities related to demolition under
HERA are also amended by ARRA. Under ARRA, a grantee may not use more than 10% of its
grant for demolition activities, unless HUD provides a waiver indicating that local market
conditions makes such demolition acceptable. Previously, under HERA, demolished vacant
properties could be redeveloped for purposes other than housing. ARRA requires that redeveloped
properties be only related to housing.
In addition, ARRA allows HUD to use up to 10% of NSP funds for capacity building and
technical assistance. Up to 1% of NSP funds can be used for staffing, training, technical
assistance, monitoring, travel, research and evaluation. Funds set aside for this purpose are
available until September 30, 2012. HUD is granted authority to waive NSP requirements, with
the exception of fair housing, non-discrimination, labor standards and environmental
requirements.
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ARRA establishes several protections for renters, including tenants receiving federal and state
assisted housing benefits. ARRA stipulates that grantees may not refuse to lease a housing unit
acquired with NSP funds to a tenant who is already receiving Section 8 housing assistance.5 In
addition, entities that acquire foreclosed properties with NSP funds are required to give tenants
5 42 U.S.C. 1437f
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notice to vacate a property at least 90 days before the effective date of such notice. ARRA
establishes several requirements for a bona fide lease under this clause. A lease is considered bona
fide if the mortgagor is not the tenant; if rent is not substantially below fair market rent; and if the
renter and the tenant are not related, and have no overt common interests that would make the
tenant contract void.
Since individuals eligible for federal housing vouchers or certificates of eligibility can benefit
from NSP funding, grantees that take over a property previously rented to an assisted housing
beneficiary are subject to the lease and housing assistance payments for the occupied units.
Grantees cannot terminate the lease based solely on the status of the tenant as a holder of a
Section 8 certificate or voucher. Vacating the property prior to the sale is not a cause to terminate
the lease contract, unless the owner decides to use the property for private or family use. If a
public housing agency is unable to make payments to a successor tenant who is not eligible for
federal housing assistance, the funds can be used to pay for utilities, moving costs, and security
deposit payments. In addition, no funding under ARRA can be used to demolish public housing.
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ARRA makes important changes to the NSP originally created under HERA. Although both
components of the NSP program will be administered within the framework of the statute
governing CDBG (Title I of the Housing and Community Development Act of 1974 – 42 U.S.C.
5301 et. seq.) HERA funds were allocated by formula for distribution to a select group of
communities (253 cities and counties) characterized as having high rates of foreclosures,
delinquencies, defaults and vacancies. Communities and states are required to amend their annual
community development plan to reflect how the additional funds will be used to meet program
objectives. Under HERA, states are allowed, for the first time, to directly administer program
activities rather than act as pass-through-agents for local governments, as is the case with the
CDBG program.6 The original NSP program allocated $3.92 billion in funds to the 50 states and
eligible communities with each state guaranteed a minimum allocation of $19.6 million (0.5% of
the total appropriated).
Conversely, ARRA funds will be awarded competitively, not only to states and local
governments, but directly to nonprofit entities. This is a fundamental change in the structure of
the program specifically, and block grants in general, which as a rule distribute funds by formula.
The intent of formula-based grants is to encourage long range planning by providing a predictable
funding stream. By contrast, competitive grants are intended to maximize the return on
investment. Such grants typically will award funds based on comparative need (greatest number
of foreclosures) and project quality factors (leveraging of private sector dollars). Awarding NSP
funds competitively may make the geographic distribution challenging.
6 122 Stat. 2851. See also HUD’s Federal Register notice dated October 6, 2008, page 58336, available at
htttp://www.hud.gov/nsp “NSP Federal Register Notice.”
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ARRA establishes a precedent by allowing non-profits, and consortia of for-profit and non-profit
entities, to compete directly against states and local governments for NSP funds. The provision
raises several policy concerns, including:
• whether nonprofits will be required to coordinate their activities with those of a
local government in order to ensure that the proposed activities are consistent
with the jurisdiction’s federally approved community development plan; and
• what will be the administrative structure employed by HUD to manage and
monitor grants directly awarded to nonprofit and for-profit grant recipients.
HERA requires that each community submit to HUD a substantial amendment to its HUD-
approved annual community development plan allowing HUD to monitor NSP activities for
consistency with both local and national objectives. ARRA does not explicitly require nonprofits
to certify that proposed activities are consistent with a local government’s federally approved
community development plan. In the absence of consultation with state and local governments,
this may result in activities being undertaken that may conflict with approved state and local
plans and activities.
Formula-based NSP (NSP 1) grants awarded under HERA allow nonprofit and for-profit entities
to serve as sub-recipients while ARRA includes non-profits as direct recipients of competitively
awarded NSP funds. Under rules governing NSP 1 grants to state and local governments must
integrate NSP activities within their overall community development plan. They have the
discretion of including nonprofit and for profit entities as subgrantees. In doing so, the
responsibility for ensuring that subgrantees meet program requirements rest with state and local
government grantees. Under ARRA, where grants will be awarded competitively (NSP 2), HUD
must develop an application and performance reporting process that may differ significantly from
the present application submission and reporting processes governing CDBG and NSP 1 funds.
As Table 2 illustrates, NSP 2 differs from both the larger CDBG program and NSP 1.
Table 2. Program Elements of CDBG, NSP 1, and NSP 2
CDBG
NSP 1
NSP 2
Eligible Activities
25 eligible activitiesa
5 eligible activities
5 eligible activities
Eligible Entities
50 states, Puerto Rico, U.S. 50 states, Puerto Rico, and states, local governments,
territories, and 1,162 local 252 local governments
non-profits and for-profit
governments
consortiums
Funding
FY2009 $4.5 billionb
FY2008 $3.92 billion
FY2009 $2 billion
supplementalc
supplementalc
Objective
broad economic and
reduce the supply of
reduced the supply of
community development
foreclosed and abandoned foreclosed and abandoned
housing
housing
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CDBG
NSP 1
NSP 2
Distribution method
formula intended to
formula intended to
competitive selection
measure community
measure relative degree of criteria intended to target
development need
foreclosures, defaults,
assistance based on need
delinquencies, and housing (number and percent of
abandonment
foreclosures) and project
inputs (leveraging potential,
concentration of
investments)
Source: CRS.
c. one time supplemental funding
a. See 42 U.S.C. 5305.
b. Includes $1 billion supplemental awarded under ARRA.
c. One time supplemental funding.
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HUD may face a number of issues in the implementation of the NSP. These challenges include
HUD’s capacity to administer, monitor, and evaluate the diverse components of the CDBG NSP 1
and 2 programs. In addition to the two components of the Neighborhood Stabilization Program
($3.9 billion in formula grants and $2 billion in competitive grants), HUD’s Office of Community
Planning and Development is responsible for administering the regular CDBG program ($3.5
billion) and the department’s disaster-recovery grants (which includes $6.5 billion for disaster
relief in 2008). As noted previously, up to 1% ($10 million) of the amount appropriated for NSP 2
activities may be used to administer, monitor, evaluate, and provide technical assistance in
support of program activities.
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The impact of the Neighborhood Stabilization Program may be limited by the level of funding
when compared to the total number of foreclosures in the nation. According to data from the
Mortgage Bankers Association (MBA), an estimated 1.35 million homes were in foreclosure in
the third quarter of 2008. Using a national median home price of $200,000, the $5.9 billion in
funding for both NSP 1 and 2 activities would buy a total of approximately 30,000 homes in
foreclosure, or about 2% of the 1.35 million foreclosed homes. Even if the homes were purchased
at half their value, NSP funds would help to purchase only about 4% of all homes in foreclosure.
Some observers may question the efficacy of NSP funding in light of the great need for
assistance. In addition to the purchase price, recipients of grant funds are responsible for
rehabilitating homes, which may further diminish the level of NSP funding available for
acquisition activities.
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Eugene Boyd
Analyst in Federalism and Economic Development Policy
eboyd@crs.loc.gov, 7-8689
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Oscar R. Gonzales
Analyst in Economic Development Policy
ogonzales@crs.loc.gov, 7-0764
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