Gov't expands national program to buy foreclosures

IRMO -- Tucked into the economic stimulus package signed by President Barack Obama last week was $2 billion to expand a nascent and controversial program to help cities and states buy and fix up foreclosed homes.

Last month, the Department of Housing and Urban Development signed off on hundreds of grants to all 50 states totaling almost $4 billion. The Neighborhood Stabilization Program, as it's known, was passed last year as part of a housing rescue plan that was regarded at the time as the most significant housing legislation in a generation.

But critics have assailed the program for the lack of money it will send some hard-hit communities, a dearth of oversight and the discontent stirring among residents who want a say in what happens to their neighborhoods.

"What houses are gonna be involved? We still don't know that and we're a month away from the funds arriving," said Mike Aaron, president of the Livingston Avenue Area Commission, a group in a foreclosure-ridden area of the Columbus, Ohio. "That's what's making us uneasy right now."

The total amount coming into Ohio, for example, is $258 million, and Columbus is getting $23 million of that. Those figures do not include new money from the stimulus package and HUD has said it has not yet decided what the guidelines for the new grants will be.

Aaron said Columbus has rebuffed his group's attempts to talk about the best ways to use money, which has already been awarded to the state.

"We need to be involved in the process," said Aaron, who is pressing for an oversight board comprised of city officials and residents.

And then there's back biting about who gets how much.

The first round money is being divvied up based on the number and percentage of foreclosures, number and percentage of homeowners behind on their mortgages, and the concentration of subprime mortgages.

While the formula sounds fair, some of the results aren't. California and Florida are both getting more than $500 million in federal help, even though California has 500,000 foreclosures - around twice the number as Florida.

Critics and local housing officials are shaking their heads over the carte blanche grantees have in how they spend the federal funds. One South Carolina county said it would consider proposals to put homeless or HIV/AIDS patients in foreclosed homes eligible for the grant, while officials in Florida's Miami-Dade County said they plan to snap up foreclosed apartments with grant money despite staunch public comment against it. Many of the proposals called for renting out the homes to low- to moderate- income families.

On the streets of neighborhoods pockmarked with vacant houses, many residents said they'd welcome new neighbors no matter how they got into the homes.

"I would want to put somebody in it, whether they're renting it or not. That's a house that somebody could be in," said Cheryl Poole, a 51-year-old Irmo resident worried about home values and the empty house across the street from her one-story ranch.

On the other extreme is Debra Oakley, a 55-year-old woman who said she isn't so sure she wants a new neighbor.

The two houses to the left of her home are vacant, including one that nonprofits are being encouraged to buy using stabilization grant money.

"I've often wondered about what kind of people would move over there," said Oakley. "I like it just like that: vacant."

Susan Popkin, a researcher at the nonprofit Urban Institute, said many homeowners have grave concerns about their changing neighborhoods and how that might affect their already declining property values.

In major cities nationwide, tensions have risen recently as federally subsidized renters move from housing projects and violence-ridden neighborhoods to nicer communities in suburban areas.

"The fear is real. The reality isn't," Popkin said. "The thing they're anxious about is what's already happening in their neighborhoods."

That's true in Columbus, Ohio, where 84-year-old Walt McKinley said he'd welcome any help to rescue their neighborhoods.

McKinley, who lives in the city's downtrodden Linden neighborhood, said he worries the spread of foreclosures in his neighborhood will drive up crime and wants the city to use the grant to demolish the house next door to his, which has been vacant since it was foreclosed upon and the owners abandoned it over the summer.

"I told 'em at work that if possible, I would even drive a bulldozer myself and bulldoze it," McKinley said. "I would be happy to."

But critics say there's no guarantees that McKinley's neighborhood or other hard-hit communities will benefit from the grants. No one is tracking just how the money will be spent and grantees have been tightlipped on their plans.

HUD will monitor how states and cities spend neighborhood stabilization money, but leave it to local governments to monitor how passthrough grants are used by nonprofits and other, smaller government groups.

Many Republicans opposed the first round of stabilization grants and don't want to increase the program. They say additional money will just give more slush funds to disreputable nonprofit groups.

"Instead of trying to work out troubles in the existing funds, we're basically doubling the size of the program and potentially doubling the size of the problem, said Frederick Hill, spokesman for the Republican Oversight and Government Reform Committee, about the House's plan to double neighborhood stabilization grant money.

Some economists also have expressed concerns over a lack of oversight.

"The record of housing authorities are not very good. It's certainly reasonable to be concerned that the money will end up going to politically connected lenders and developers and not do very much for communities," Baker said.

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Associated Press writers Meghan Barr in Columbus, Ohio; Adrian Sainz in Miami, Fla., and Wilson Ring in Montpelier, Vt. contributed to this report.