It seems that Southern California is not the only place where local communities are doing a poor job of allocating federal foreclosure relief money.

A just published report by the Federal Reserve Bank of Cleveland shows that Neighborhood Stabilization Program funds are not being spent in the places in Ohio that need help the most.

The report’s findings are similar to what we uncovered during the reporting of our story last month on how NSP funds are being spent in Santa Ana and other places in Southern California.

From the report:

Critics have called the program too rigorous and inflexible. Complaints range from the heavy administrative burden on communities, especially smaller ones, to the narrow time frame allowed for spending the dollars. NSP rules also severely limit the uses to which officials may direct these dollars. And some feel that NSP1 allocations are simply too little.

Money aside, implementation challenges abound. Some officials are finding that although areas targeted in their original plans as “most needy” are still worthy of stabilization efforts, other areas in their communities are now worse off. Grant money, however, must be spent in the areas targeted by the original plans.

Another challenge lies in purchasing the properties specified in a community’s plans. Program administrators tell us that private investors often scoop up these properties before public entities can.

The reasons vary: a cumbersome administrative process for securing legal approval to buy the house with NSP funds; a seller unwilling to accept less than fair market value for the house; or an able and willing investor — able to move quickly and willing to pay fair market value — who beats the community to it.

While competition from private investors can certainly indicate a market is working, it has nevertheless been problematic for some communities. Moreover, private investors often do nothing with their purchases but wait, leaving the properties to fall into further disrepair.


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