Housing aid program raises hopes, concerns and questions

Local governments across Georgia are getting ready to jump into the house-flipping game — financed with federal tax dollars.

Government officials and housing organizations in Georgia will have $153 million to spend under the Neighborhood Stabilization Program, part of the federal $700 billion bailout of the banking system. The aim is to buy, repair and sell or rent run-down homes and create affordable housing, while stabilizing neighborhoods distressed by foreclosures and abandoned properties.

“This is such a golden opportunity if it is done right,” said Evelyn Nu’Man, director of the Bureau of Housing for the city of Atlanta. “They are calling this disaster recovery money. The housing market is in a disaster.”

The enthusiasm of some government housing officials is being tempered by elected officials, real estate professionals and others who say the NSP creates huge potential for corruption, ineffectiveness, waste and conflict.

And even supporters concede the money will have little impact against a vast metro Atlanta real estate market in decline. They say the best hope is for an impact on certain streets or in specific neighborhoods but not across cities or counties.

“Ten million dollars seems like a lot of money,” said Melvin Richardson, assistant director of community development for Fulton County. “But compared to the problem, it’s really just a drop in the bucket. If we do six or eight houses in the same area, we might help stabilize that street.”

DeKalb County CEO Vernon Jones, whose county gets the largest allotment, doubts the program will help a county that has been struggling with foreclosures for years. He readily admits it could go horribly wrong.

“The restrictions that come along with it … you can tell it wasn’t well thought out,” Jones said. “It’s not going to have the impact it should. It came from a bunch of bureaucrats trying to score political points.”

When Jones heard the federal government would make cash available to fight the foreclosure crisis, he said he rushed to Washington to attend a briefing. He left disappointed when he saw there was a huge disconnect between the program’s intent and how he thought it would work on the street.

“They just left the stakeholders out of the room,” he said. “They didn’t talk to anybody. They were just flying by the seat of their pants.”

The program is designed to quickly pump money into communities to combat downward-spiraling real estate values and neighborhood blight from abandoned homes. At the same time, the federal government hopes by buying and fixing up these homes to create low-cost housing — and repopulate run-down areas with many of the same people who are losing their homes to foreclosure.

Normally, such a program might unwind over years. This time, however, the schedule has been compressed because of the national real estate and foreclosure crisis.

The U.S. Department of Housing and Urban Development was given just 30 days to come up with its guidelines. Local governments, with 45 days to draft their own programs, have until Dec. 1 to apply.

Money should be available by mid-February. Governments have 18 months to commit to specific projects and four years to spend it all — whatever’s not reserved or spent goes back to HUD.

Because the program has moved so quickly, many local officials contacted for this story knew little or nothing about it. Cobb County officials refused to even talk about the program last week because housing officials had not yet briefed the county manager or any elected officials.

Most local governments are planning public hearings and briefings for public officials over the next two weeks to meet the federal deadlines.

As they do, questions and concerns are multiplying.

Atlanta Councilman Howard Shook said what little he’s learned makes him wonder whether it won’t be a spectacular failure. He compared it to the city’s $100 million empowerment zone program — a Clinton administration initiative — that failed to transform blighted areas of Atlanta in the 1990s.

“For a government that struggles to provide meat-and-potato services,” Shook said, “I’ve got a hard time seeing this as anything other than a disaster for the ages.”

HUD is restricting what can be bought, allowing only bank-owned foreclosures. It will limit governments to paying no more than 85 percent of a current appraisal.

And it will set income limits on who can buy any house the government repairs. No buyers can earn more than 120 percent of the area’s median income, about $85,000 for a family of four. Some must be reserved for families living on as little as $35,000 a year. Governments will also be prohibited from making a profit on any flips.

Restrictions aside, HUD gives local governments wide latitude.

They can run the program through their own staff, leaving them decisions on what properties to buy and what repairs to make. Or they can use contractors, professional flippers or local housing nonprofits.

Also, governments could choose to tackle houses that need complete overhauling or search out properties flippers like to call “fluff and buff” specials, houses that only need cosmetic repairs.

A government could target its worst area. Or it could take on a well-established area, blighted by fewer foreclosures, to keep it from falling. Some might go after communities that have already dropped significantly to prevent a free-fall.

The program has an Atlanta veteran house flipper, Virginia Van Lear, fearful the program will fail.

Van Lear estimates she’s flipped more than 100 properties from Candler Park to Kirkwood since 1996 and continues to do 10 or so a year, even in this down economy. She questions whether any government bureaucracy has the expertise to choose the right properties, create renovation plans, bring in subcontractors to execute those plans, monitor the work and sell the properties.

The work needed in rehab homes, Van Lear stressed, varies dramatically house to house. Choices for tile, trim work, countertops, light fixtures and flooring all vary based on age, period, style and neighborhood.

“There is so much room for error and fraud,” Van Lear said. “What department has the expertise to do this?”

Jones agreed.

“Nobody on our staff is trained to do that,” the CEO said. “We’d have to have a construction management team. Now we are in the contracting business.”

He noted the governmental bid processes, vetting of contractors and other red tape will prevent government from moving with the same speed as private home flippers. And that will delay the desired instant impact sought by federal regulators.

Several local officials said they expect the first rehabbed homes back on the market next fall.

Atlanta real estate agent Sean Casey cautioned against governments going for their worst areas because the money won’t have any impact in such areas. He noted that in ZIP code 30310 in southwest Atlanta, Georgia’s top area for foreclosures, there are currently 326 homes for sale that are bank-owned foreclosures. They range in price from $14,900 to $385,000, he said.

Atlanta’s $12.3 million couldn’t make a dent in that one ZIP code, Casey said.

“I would argue that to go out to West End or the Bluff (near the Georgia Dome) and buy property after property isn’t going to have the desired effect,” Casey said. “Over there, it’s a drop in the bucket.”

Casey added the program could even have a negative impact if the local governments sell homes at bargain prices in neighborhoods that haven’t yet lost lots of value. He said the low-dollar sales could get pulled as price comparables when appraisers set values for owners or potential buyers of nearby properties who are considering mortgages or refinancing or lines of credit.

The question also remains whether local governments will even succeed in selling the houses they repair.

Real estate experts say sales are unlikely for homes bought in many of the hardest-hit areas because values have fallen so steeply and communities have become so unsafe that few buyers are willing to locate there, even at a bargain price.

HUD’s guidelines allow local governments to rent their properties out to income-eligible applicants if they can’t find buyers.

That opens up the possibility of local government becoming long-term landlords with all of the headaches that entails — collecting the rent, screening tenants, making repairs, etc. They would also be responsible for evicting anyone who couldn’t pay their rent.

Still, many are hopeful that the program will benefit downtrodden communities while creating affordable housing.

John O’Callaghan, CEO of the Atlanta Neighborhood Development Partnership, a nonprofit affordable-housing organization, said he hopes to partner with several local governments to restore homes through the program. The ANDP already has a plan to use private donations to repair 50 homes on its own.

This program could help neighborhoods and individuals needing housing, he said.

“It’s a piece,” said O’Callaghan. “So many people are overwhelmed by what we are facing. This alone is not going to fix it. It can help.”

FEDERAL MONEY

Local governments in Georgia will get a lot of cash for their house-flipping efforts under the federal Neighborhood Stabilization Program. The numbers for the jurisdictions below are all in millions.

$77.1: Georgia

$18.5: DeKalb

$12.3: Atlanta

$10.5: Gwinnett

$10.3: Fulton

$9.7: Clayton

$6.9: Cobb

$3.1: Columbus

$2.5: Augusta

$2.0: Savannah