Lenders pass over program’s grant money, red tape to sell to investors
By: Terry Sheridan
A year after millions in federal funds were earmarked for South Florida cities and counties to buy and sell foreclosed properties, no money has been paid out as lenders and bargain-hunting investors thwart deals.
Now the U.S. Department of Housing and Urban Development, the agency disbursing the money, is planning a pricing change to allow program participants to compete against bulk buyers and investors eager to pay lenders’ asking prices.
Called the Neighborhood Stabilization Program (NSP), the $4 billion nationwide plan was announced last June as part of the federal Housing and Economic Recovery Act.
The funding allocations through HUD’s Community Development Block Grant Program were announced in September with an 18-month deadline for recipients to dedicate their money, or lose it. They have four years to spend it.
South Florida local governments were to receive almost $200 million to acquire land and foreclosed houses, to demolish or rehabilitate properties or to offer down payment assistance to low- to moderate-income buyers with household incomes no more than 120 percent of the area median income.
But no local governments have submitted invoices to HUD for reimbursement under the program, and the agency expected the program to be further along than it is, said Armando Fana, HUD’s Miami field office director.
Bureaucratic red tape is partly to blame, including a database payment system not yet online. But critics say lenders favor investors over program participants, and say HUD’s requirement that participants buy houses at a discount have stalled the program.
The agency received enough complaints about lenders unwilling to work with NSP buyers that HUD and the Miami office of the Federal Reserve Bank of Atlanta met with representatives of BankUnited, Wachovia/Wells Fargo, Citibank Mortgage, Regions Bank and HSBC to address concerns. Other lenders were invited but did not attend, Fana said.
Wachovia spokeswoman Kathy Harrison said the lender is not resisting the program. Wachovia is offering non-profit groups and local governments a first look at an online listing of foreclosed properties before they are marketed to investors and the general public, she said.
HSBC declined comment. The other lenders did not return phone calls by deadline.
“We were hearing about barriers the grantees were facing,” said Fana.
The program allows local governments to select nonprofit groups to buy and rehab properties and sell them to buyers who meet income requirements. NSP rules also allow vendors to pre-qualify or certify individual buyers, who then can deal with lenders directly.
“Communication was a big one, just being able to reach the right people to even begin to discuss a transaction. The other is being able to purchase at a discount.”
The program allows NSP participants to buy foreclosed houses at 15 percent below the appraised value. But lenders have balked at that, saying they have plenty of competitive buyers willing to pay full asking prices or more on houses that already have plummeted in value.
This week, HUD expects to announce that the required 15 percent discount will be decreased to 2 percent to 5 percent, Fana said.
Local government officials let out a sigh of relief at the news.
“Why would anyone give you another 15 percent discount when prices are so competitive at market value,” asked Shalley Jones Horn, director of the Miami-Dade Office of Community and Economic Development in Miami. The department oversees the county’s $62 million NSP allocation.
Horn, former Florida director of Fannie Mae, said she told HUD officials at the outset that the discount requirement would be a stumbling block.
“You’ve got investors that will give lenders more than they are asking — and pay with cash,” she said.
It took the Broward Alliance of Neighborhood Development (BAND), a nonprofit consortium of Broward and Miami-Dade housing groups, almost two months before a bank accepted its offer on a foreclosed house in Plantation. And that was after other lenders refused to work with the group, said BAND member Katharine Barry. Plantation selected BAND in April to handle the city’s $2 million allocation.
BAND’s deal hasn’t closed yet, and officials declined to identify the bank or the property.
Barry, who also is president of H.O.M.E.S. in Fort Lauderdale, a BAND member, said buying the foreclosed properties is proving to be more difficult than anyone expected.
“I don’t know how to describe it,” she said. “Even though there are so many foreclosures, they’re hard to buy. One part of the bank doesn’t know what the other part is doing. And some said they don’t want to work with NSP grantees.”
Suzanne Weiss, associate director of nonprofit Neighborhood Housing Services of South Florida in Miami, said some municipalities have qualified prospective home owners, given them NSP letters indicating the amount of money they have available to buy a foreclosed home, but they are outbid by investors who typically are cash buyers.
“You’d think a seller would love to see someone with $50,000 in their hand, but the banks are not wanting to deal with these people,” she said.
HUD’s Fana said some lenders are contracting with asset managers to pool properties and sell them in bulk to investors.
“One of the complaints we’ve heard from grantees is that asset management companies aren’t listing these properties [for sale] so that they can be sold to investors,” he said.
At the Broward Real Estate Investors Association, president Bill Leon said he has property listings from a fee-based database that indicate almost 31,000 foreclosed condos and single-family houses in the tri-county area are not listed with bank brokers or the Multiple Listing Service. Another 135,000 condos and houses have not yet been sold at auction but are in the foreclosure process.
“I read the [NSP] requirements, and there was so much red tape that I wouldn’t get involved,” he said. “They made it too difficult.”
Paperwork alone can total 30 pages. And property values are in such flux that appraisals are problematic, he said.
In Coral Springs, 52 prospective buyers were certified through the NSP program, only to see the homes purchased by cash buyers, said Susan Hess, the city’s community development director.
“It’s good these homes are selling. But we’re hoping to get people who will [own and] live in them,” she said. “The investors will be renting them out.”
Charles Durkin, West Palm Beach’s housing finance manager, said the city has 22 pending NSP purchases in the Coleman Park neighborhood. But dealing with lenders’ asset managers, appraisals that “cause a kink” in negotiations and competitive investors mean not all the deals may happen.
“It’s harder than I thought it would be, but you have to do what you have to do,” he said. “I have to be optimistic.”