Stimulus Housing Plan Slow to Take Shape in Contra Costa

Stimulus housing plan slow to take shape

By John Simerman Contra Costa Times
Posted: 02/02/201004:45:33 PM PST
Updated: 02103/2010 05:15:15 PM PST

A year into a $6 billion federal program to buy up, rehab and sell abandoned properties in hard-hit neighborhoods, the bulk of the first $40 million in Bay Area rants remains unspent. Cities and counties are struggling to get their hands on the right homes, competing with cash- carrying investors and thwarted by banks reluctant to put foreclosed houses on the market. The creeping pace of the Neighborhood Stabilization Program seems to defy both the idea of rapid federal stimulus and the fast flow of houses bobbing into foreclosure - one every 18 minutes in the Bay Area. Housing experts say its troubles are partly attributable to red tape and overwhelmed banks, but mostly to what they never anticipated: a surge in the market for beleaguered properties.
A sea of eager, cash-toting investors are lapping up cheap foreclosures, often before the agencies can bid on them. The program requires that cities and counties buy the properties at a discount - a condition the banks have been slow to embrace given the high demand. "I don't know that we expected in the East Bay to see the level of competition from investors in neighborhoods that were facing blight," said Larry Bush, spokesman for the Department of Housing and Urban Development.The result: Contra Costa County, with $6 million from the federal program, has so far managed to turn over just one house, although it has nine more in the works with the help of Habitat for Humanity and other private housing firms. That's a leg-up on most other Bay Area cities and counties. Antioch, a hotbed of East Bay foreclosure, received $4 million, but has spent none. Richmond, with $3.3 million, had committed about 10 percent of the money as of Dec. 31, and so had Alameda County, which got $2.1 million. San Jose bought two rental properties for rehab, but had committed less than $500,000 of its $5.6 million, according to quarterly reports to HUD.
"I didn't think it would be this hard," said Kara Douglas, Contra Costa County's affordable housing program manager.
Oakland, with an $8.2 million grant, has weighed in with just two purchases of single family homes, and one rental building for rehab. "The banks are not opening up these properties so easily, and we're having to compete with investors who are there with cash at hand," said Michelle Byrd, director of the city's community block grant program. "There are a lot of speculators out there. It's just been very difficult to acquire the properties."
The clock is ticking. Most cities and counties must commit all of the money by September or risk losing it - a deadline that has state and local agencies grumbling.
"It's a great program. It's helping these communities hit hard by foreclosures that undervalue the rest of the market and also increase crime," said Chris Westlake, deputy director of the state Department of Housing and Community Development, which oversees $145 million in program money. The deadline is an issue, he said. "Everybody's yelling for an extension. There's a concern nationwide." It's unclear just how much the investor market is itself doing what the federal program set out to accomplish - stanching the tide of vacant houses that lower property values, pushing neighbors deeper underwater and roiling new waves of foreclosures.
"The belief was we would ensure that the homes were going to some people who were going to put real investment in it," said Bush, "and that means a homeowner who is going to be living there, as opposed to someone who would do a low-budget retrofit and try to rent it out."
Banks concerned about their own balance sheets have proven reluctant players. They also appear to be keeping houses off the market and delaying foreclosures, said Rick Sharga, senior vice president of RealtyTrac. Some banks are letting delinquent borrowers stay longer in houses, rather than boarding them up. About half of bank repossessions over the past year aren't yet on the market, he said.
"They don't want to flood the market, and they have another problem - the elephant in the room: They don't have to write down the value of these assets until they resell them," he said. "The banks really have held back an awful lot of inventory."
It's clear that's what's happening in Oakland, said Byrd, and it's confounding the federal program.

"I think Congress envisioned the banks would just be r.eady to work with us and give up these properties, whereas they're not."
Squeezed by supply and demand, housing advocates working with Contra Costa County have been forced to broaden their search. Habitat for Humanity wanted to key in on the troubled Shore Acres section of Bay Point, for instance, for a greater impact. Instead, they've picked up five houses across the city. "Our ideal would be to find a number of homes on one street," said Alyssa Thunberg of Habitat for Humanity. "We were hopeful we could focus narrowly, which hasn't happened yet."
The delays extend across the country, with only about 30 percent of the money committed so far, said Craig Nickerson, president of the National Community Stabilization Trust, which has pushed large banks to join a "first look" program, where local agencies can bid on properties before they reach the market. It's only beginning to work, and East Bay cities and counties have signed on. Habitat for Humanity is closing on its fifth house in Bay Point, with plans for eight. Another housing contractor has bought two houses for the county in San Pablo.
The purchases reflect a grim reality. One house on Riverside Drive in Bay Point went for $376,000 in 2006. Another, on Surf View Drive, sold for $285,000. Habitat for Humanity paid $210,000, for both. Some need complete renovation, lead abatement, asbestos and mold removal. The house on Riverside Drive needs a new roof, replacements for the shabby floors and a new kitchen. Volunteers wielding sledgehammers and shovels got started one recent morning, pulling floors and yanking out toilets, cabinets and sinks. Black, indelible ink on the walls hinted at tough times before the residents left. "Sometimes, one must move on, no matter how painful separation may be," reads a forlorn message in the garage. "Let's focus on the future not the past," implores the thick scrawl on a bedroom wall. "It's a very difficult time in a family's life. There's no way to sugarcoat it," said Janice Jensen, CEO of Habitat for Humanity East Bay. "Our emphasis is to take a sad situation for one family and make an impact going forward."
Habitat for Humanity will finance low-income buyers, but may need to sell the houses for less than the county pays to buy and rehab them, to make them affordable. So the county's $6 million will likely drain slowly over the five-year program. In the meantime, more foreclosures are expected to hit the market soon, Nickerson said. Another 4,800 homes were lost to foreclosure last quarter in Alameda, Contra Costa and Solano counties, according to MDA DataQuick. "We're going to see a major tick-up in foreclosure activity, and also a major tick-up in East Bay communities buying property and beginning to get some traction on this effort," Nickerson said. Some more than others.
Last month, HUD announced its second round of funding for the program. Alameda County and a group of cities - including Dublin, Hayward, San Leandro, Fremont, Livermore and Pleasanton - got $11 million to buy 100 properties for low-income rental housing and redevelopment.
A Santa Clara County consortium won $25 million for 205 houses and properties. But HUD rejected a $50 million bid from Contra Costa County and a consortium of cities to buy and rehab houses and help with down payments and counseling. The federal agency gave no explanation. "When you look at the census tracts in Northern California, and even the East Bay, eastern Contra Costa had the biggest problem," Jensen said. "It's a little baffling."