Foreclosure Relief that Doesn’t Add Up

The sign outside a foreclosed home. These signs have become familiar sights in Santa Ana in recent years. (Photo credit: voiceofsandiego.org)

The sign outside a foreclosed home. These signs have become familiar sights in Santa Ana in recent years. (Photo credit: voiceofsandiego.org)

Thursday, April 1, 2010 | The federal government has funneled millions to the city of Santa Ana since the beginning of last year hoping to save neighborhoods from the blighting effects of mass foreclosures. The city has used that money to buy, rebuild and put families into a total of eight previously foreclosed homes.

Meanwhile, a local nonprofit, Neighborhood Housing Services of Orange County, has rebuilt and put families in almost twice as many homes -- and done so without any federal assistance.

Such lackluster results by Santa Ana and several other Southern California governments has economists and other experts questioning whether the $4 billion federal assistance program, dubbed the Neighborhood Stabilization Program, has provided much in the way of actual assistance.

"Most of the impacts of this program are anecdotal," said Paul Habibi, lecturer at the UCLA Anderson School of Management.

The ongoing housing bust has been particularly hard on Santa Ana -- at some points in recent years it has been home to as many as 1,500 foreclosures. City officials say they are happy with what they've accomplished so far through the federal grant program.

"There are some cities that haven't even started spending," Said Shelly Landry-Bayle, Housing Manager for the Santa Ana Community Development Agency, which received a $6 million grant in 2009 and another $10 million this year. So far the city has spent $3.6 million.

Santa Ana does have more to show for its effort than other local governments in Southern California. The County of Orange has yet to put a family into a home despite receiving $6.3 million from the program.

San Diego County has helped a total of two borrowers obtain down payment assistance. Los Angeles City says its first home is slated to be sold this month.

The standout is Los Angeles County, which has put 50 families into previously foreclosed homes. Another 16 properties are in escrow. Yet L.A. County's stellar performance -- comparatively speaking -- was not enough to earn it another round of NSP money this year.

Santa Ana, however, did receive another round of funding, and high marks from the U.S. Housing and Urban Development Department.

But the primary metric HUD uses to measure a local government's success with the program is how quickly the money is spent, not how many families have been helped. If a grantee hasn't committed 100 percent of its funds by September, HUD reclaims left over money.

"Folks should be at 81 percent [commitment], Santa Ana is at 85 percent," said HUD spokesperson Brian Sullivan.

The biggest recipient of Santa Ana's spending so far is Santa Fe Springs-based ANR Industries, the contractor that won the bid to do the rehab work. For the eight homes it rehabbed and sold in the first round, ANR reaped over $100,000 in "developer fees."

HUD thought ANR's record in Santa Ana was good enough for a new grant in 2010 -- this time for $10 million. And the company will again get the contract. Meanwhile, Neighborhood Housing Services, which lost out to ANR during the city's bidding process, successfully rehabilitated and sold 15 homes in 18 months.

Orange County received $3.2 million from HUD in March, 2009, but decided to wait for a second pot of money from the state, said Julia Bidwell, Deputy Director of Orange County Community Services.

The county waited until February of this year to approve a list of contractors for NSP work. Sullivan said meeting HUD's September deadline to commit 100 percent of all NSP funds shouldn't be a problem for the county.

Neighborhood Housing Services, which is rehabbing homes for the county's version of the program, doesn't see it that way.

"We're really in a bind to meet HUD's time-line," said Glenn Hayes, the non-profit's executive director. "Nobody has explained to me why it took so long for the county to get us the money," Hayes said.

San Diego County attempted to implement its own version of the single-family home rescue program, but gave up after it couldn't compete with private investors.

"We thought it (the home buyer program) was going to be a real winner," said Mike Dececchi, San Diego's Chief of Community Development Division of the Department of Housing and Community Development. "They (the banks) wanted quick action and all cash."

Since San Diego County did not get it's homebuyer assistance program off the ground, it moved most of its funds to low-income rental housing assistance. To date, exactly two borrowers in San Diego have been given down payment assistance.

Dececchi said rental assistance is the most prudent use of the money. Under that leg of the program, there are nearly 10 rental housing projects in San Diego under way.

Then there's the city of Los Angeles. Of the 32,000 foreclosed homes that have blighted the city, only four have been rehabilitated. For its single-family home rescue campaign, the city formed Restore Neighborhoods LA, a non-profit contractor.

It has shown a little more success with its down payment assistance program. So far, 18 people have been given down payment assistance to purchase a home, the city said.

An inquiry into HUD's program enforcement is on the way. The Government and Accountability Office is conducting an investigation into the progress of the program and steps HUD is taking to ensure compliance, said GAO Director of Financial Markets and Community Investment, Mathew Scire.

But Scire doesn't expect the report on the investigation's conclusions until September - the same month NSP grantees' 100 percent obligations are due.

Paul Leonard, CA Director of the Center For Responsible Lending, believes HUD's limited administrative resources will stifle accountability.

Leonard also believes that the stated goals of NSP and the allocated resources don't line up. "I don't think you're going to see dramatic, or holistic results," Leonard said.

UCLA's Habibi agrees. The program simply doesn't have the kind of money needed to stabilize the grantees' housing markets, Habibi said. The real impact, according to Habibi, is the image boost politicians get when they announce these kinds of rescues.

"It's politically favorable to do something like this in the community," Habibi said.

Then there's the looming threat of what Habibi calls "moral hazard" - when a homeowner defaults and is then rescued, it discourages neighbors from keeping up with their own payments, Habibi said. That could end with the cycle repeating itself until government intervention stops.

Donald Booth, Economist at Chapman University, also thinks the program does more harm than good. NSP can actually drive neighborhood home values down by selling homes at under market value, Booth said.

Phil Schaeffer, a local realtor and member of California Association of Realtors, was shocked when he saw a home that ANR rehabilitated sold for $400,000 that could have easily gone for $500,000.

"That home sold way under market," Schaeffer said. "Way, way under market."

ANR Industries counters the critics by pointing out that the Santa Ana NSP program has created at least 10 new jobs with the company. And, said ANR vice president George Jordan, jobs are being created in a number of service companies it deals with, including subcontractors, listing agents, appraisers, escrow, and title companies.

Yet L.A. County, arguably the most successful recipient, has demonstrated that a middleman like ANR isn't needed. When needed, the county gives homebuyers a grant of up to $25,000 for repairs and provides them with a list of recommended contractors.

The NSP program could end up being an important component of a more comprehensive effort. But, said Leonard, the intervention needs to come much earlier.

"The first and best piece (of the solution) is foreclosure avoidance," he said.

Please contact Adam Elmahrek directly at aelmahrek@voiceofoc.org and follow him on Twitter: twitter.com/adamelmahrek. And add your voice with a letter to the editor.

 

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