Mortgage Finance Blog

Neighborhood Stabilization Programs - Can first-time homebuyers really take advantage?

June 11th, 2009 4:48 PM by Diego Quintero

As most of you were aware, the government came out with a program entitled, “The Neighborhood Stabilization Program.” Individual cities designed their own method of spending an allotted resource of cash to help stabilize home values in hard-hit communities. It was Washington’s big plan to assist with down payment, remodeling, refurbishing, and the revitalization of homes and neighborhoods. First time homebuyers are supposed to jump at the opportunity to take advantage of low home prices, low interest rates, and access a minimum of $15,000 in a forgivable loan. The plan was to decrease inventory and open homeownership to new buyers. Fifteen thousand dollars is a respectable amount of money to go in and improve your own property and to use some of it as down payment money, excellent! Except it is not as cut and dried as it appears.

In Maricopa County, AZ, we received $39.2M. Yes, that’s it! The state of Arizona received another $39M, while individual cities received additional allotments that were not substantial enough to mention. The total of $700B for the first phase of the 'bail-out' was whittled down to give the second most depressed real estate market in the US, less than $200M. It is a joke. And, from what I am finding out, its a waste of money too.

I was one of eight individuals who submitted a plan for the use of the funds in Maricopa County. Only three of those applicants were involved in the industry, first hand. The other submissions were made by consulting firms who have no vested interest in the local economy. The firm selected for the job in Maricopa County and many other counties across the US, was a large firm out of San Francisco, Atlanta, and New York. They put together a “request for proposal” that seemed to knock the socks off of the committee that selected the piece of work. Too bad its just plain ridiculous! I may not have been the one to solve all of the problems, but I know that my plan did not consist of nearly impossible circumstances to make it happen. What a tease!

I have an eager customer who wants to take advantage of the program and I called the local housing department to get the particulars of the newly instated plan. First, each applicant must attend an eight-hour seminar where they learn money management and the importance of maintaining good credit. Secondly, the applicant must seek the services of a mortgage consultant who will provide a loan commitment. Lastly, a real estate agent will help find a primary residence for the applicant which must be a bank owned or ‘foreclosed’ property. Up to this point the process is quite normal. Find a home, place an offer, and agree to terms...and oh, one last part. An addendum must be signed by all parties which has this very interesting clause. The clause states verbatim, “The purchase price shall not exceed 85% of the ”as is” Appraised Value of the Property as determined by an appraisal conducted by a qualified appraiser...”

Wow! With that clause, I can predict that NO BANK will sign that contract. Why would banks agree to sales prices that are far below the already depressed market values? I have placed offers on bank owned properties that are listed slightly below appraisal values and it ends up becoming a bidding war. Even full cash offers with a ten day close period is not enough. My final opinion on the matter is that it was a waste of time and a waste of resources.

Now, for the fun part. Washington gave us those funds to use to improve our local market. What tax implications must we be ready to take on? Greater property taxes, greater local sales taxes? Who knows...now that we have wasted more time and resources. There was probably a great way to re-invest those monies, firstly, if it was substantial enough and secondly, if they chose a plan that was a bit more practical. Find out if your tax dollars are going to waste in your local communities, visit www.hud.gov/nsp.

I predict that the majority of the money will be sent back to the government, after we have all paid the price in increased taxes. Good luck to those of you who wanted to use the program, it appears that you will have to do this the old fashioned way.

In a positive commentary, our market has done a great job reducing inventory and less foreclosures are being filed. We are still a long way from healthy – but that just means that there are more deals out there! Search for foreclosures directly from www.fsrei.net. Get a glimpse of the available inventory. Take advantage of it!

Your trusted mortgage professional,

Diego L. Quintero

Posted in:General
Posted by Diego Quintero on June 11th, 2009 4:48 PM


Thank you washington for another failed program to fix the mortgage industry and another gigantic waste of taxpayer money. sincerly - Barry
Posted by barry badrinath on June 11th, 2009 6:44 PM


Barry, my goal was not to discourage you. I merely wish to educate my blog readers about the use of tax payer funds and about our industry. We need to unite and speak as one to make the changes that we are seeking in our local markets and nationwide. Thanks for the commentary! Diego
Posted by Diego on June 11th, 2009 7:45 PM


My wife and I are in the process of a short sale on our property. We originally purchased a condo at $118,500 and now the offer on the table is $30,000. The bank seems to be willing to work with us and hopefully everything works out smoothly. Now why wouldn't a bank allow an already foreclosed home to sell at 85% value when they are agreeing to short sales at far less value than the original purchase price? This doesn't make sense to me. -Derek-
Posted by Derek Howard on June 12th, 2009 6:38 AM


Derek, Thank you for the comment. If your condo complex has had two or three other sales at $30,000, then those would be considered valid comparisons to your condo. With this program, the bank now has to take an additional 15% less than that newly appraised value. The result is that they will net $4,500 less on the sale. At these values it is not a large dollar amount but at $400,000 the value becomes more substantial. Most importantly, however, is the fact that the affidavit of value filed with the county will represent a sales price of $25,500 on your condo. This new value becomes a comparison for the next buyer and has further depressed market values in your condo complex while further deteriorating the financial position of the lending institutions. I hope that you find this helpful - Good luck on your sale. Diego
Posted by Diego L. Quintero on June 12th, 2009 8:14 AM


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