Acquisition _ Relocation

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					                                 NSP PROGRAM QUESTIONS AND ANSWERS

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Acquisition & Relocation
Action Plan Amendments
Affordability Requirements
Demolition
Distribution of Funds
Eligible Use Scenarios
Environmental Review
Financing Mechanisms
Formula Allocation
Homeownership Counseling
Land Banks
25% Low-Income Set-Aside
NSP Information Sessions
Program Administration
Program Income
Prorating NSP Funds
Public Facilities
Public Housing
Purchase Discount
Redevelopment
Regulatory Information
Rehabilitation Standards
State Distributions
Tax Liens
Timeliness of Use & Expenditure of NSP Funds


Acquisition & Relocation

The guidance on page 34 shows the purchase and rehab of homes and residential properties that have been
abandoned or foreclosed upon as eligible NSP activities. How can you acquire an abandoned property?
Foreclosed upon is understood, but it is unclear how abandoned properties are to be addressed. Please clarify.

You need to identify the lender-servicer to determine if available for purchase.

If the activity undertaken is acquisition, do all properties acquired have to be in an LMM income census tract or
an area identified as having the greatest need, or can the national objective be met by selling the property to an
income eligible (LMM-income) household. Alternatively, providing direct financial assistance to an income-
eligible family to purchase a foreclosed home.

The legislation requires grantees to give “priority emphasis” to areas of greatest need (foreclosures, abandoned
homes, subprime loans). The focus is on stabilizing the most distressed neighborhoods. While the law does not
require exclusive emphasis, activities outside these areas should be exceptions. You must sell properties to
people in the LMMI category, wherever the property is located. You may provide financial assistance for
purchases (as opposed to buying and re-selling the home). Hope that helps.

Thank you. My understanding is the acquisition/demo must be in a LMM income census tract because the
national objective would be LMM - area benefit.

Providing financial assistance to LMM income households for acquisition or acquisition/rehab/ and resale to LMM
income households could be anywhere because the national object would be LMM persons.
True?


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The acquisition of a foreclosed home is not a separate activity, with a separate requirement to meet a national
objective, if you are reselling it to a LMM person. The CDBG regs at 570.208 (a)(3) describe just such a two-
stage transaction as low-moderate housing. This is not an area benefit activity, but a housing activity.

However, in NSP. there is a difference between LMMI areas and areas of greatest need (foreclosures, etc.); they
are likely to be the same but not always. You need to spend the great majority of NSP funds in areas of greatest
need, whether or not these are LMMI. For example, you may purchase a foreclosed house in an area of greatest
need which is not a LMMI census tract, but you must sell it to a LMMI person.


Please clarify the term “transfer in lieu of foreclosure”.

Background:
A homeowner who has received a notice of default and/or foreclosure approaches an NSP grantee offering the
grantee the option to purchase his/her home in lieu of foreclosure. If the property is purchased in-lieu of
foreclosure, the homeowner will vacate the property and not be assisted by the NSP.
Question:
May the NSP grantee acquire the property with NSP funds and resale the property to an NSP eligible client?

Does this offer meet the “transfer in lieu of foreclosure” definition?

The situation you describe would be a transfer in lieu of foreclosure”, so the grantee could acquire and resell the
property.


Are individual property appraisals required when purchasing foreclosed properties in bulk, at discounted prices?

Yes

1. We are considering a rent to own program, where the property is first rented to an income qualified family
while we work with them to save a down payment and get their credit improved. If something happens where it
becomes necessary to evict the tenant later, will we have to pay relocation benefits?

2. If a jurisdiction institutes a lease-purchase program, will URA apply to the tenant if he/she does not qualify to
purchase at the end of the lease term?

We have received the following guidance from our relocation staff:

Under the URA, a person who is evicted for cause (see 49 CFR 24.206) is not eligible for relocation assistance.
The complicating factor here might be what is behind the question—do they anticipate evicting the tenant
because at some point in time the tenant may be unable to fulfill the purchase requirements or are they
anticipating that the tenant may become delinquent on the rent (which would clearly fit the eviction for cause
requirements)?


Is vacant land that has been foreclosed upon or abandoned eligible for acquisition?

Yes, under Eligible Use E for sure. If it is residential property, also under B.

Just to clarify: I mean vacant land with no buildings on it at all (so it wouldn’t be under B – that’s why I’m double
checking).

I would consider residentially zoned land, even if vacant, to be residential property. That’s why I replied that way,
but I tend to be a little more lenient than some.

Anyway, redevelopment is probably going to be a more flexible category for a lot of activities.


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A further twist to the vacant land question!

I have learned that for this community, the city took the property in foreclosure with a crumbling building on it
some time ago. The building deteriorated so they cleared the lot so it is now vacant land.

Don’t know if this makes a difference.


I see no difference in when or how it became vacant.



We have a non-profit that wants to open a homeless shelter to serve youth ages 13-17. They have made an
offer on an eight acre property. The facility will include a crisis center and a temporary shelter and provide
services to youth and their families. If they buy the property before NSP funding is available is the property no
longer vacant? Can a non-profit own a piece of property that is vacant and redevelop it? Thanks.

Sorry for the delay; we had to ensure consistency with a broader group. We have been having some different
perceptions of redevelopment, but it continues to be defined pretty broadly.

This activity can proceed, with the caution that they should not do more than acquire the land at this time. We
assume that they are not seeking reimbursement for the acquisition. If they are, you should perform an
environmental assessment prior to the purchase. In addition, it should be in an area of greatest need, or close
enough to support the effort there. After the NSP funding is received, assuming it meets those conditions, the
county can use grant funds to construct a public facility, even if it is operated by a non-profit. Since homeless
teens would be part of the presumed low and moderate income group, that will meet the income requirements. I
hope that answers your questions.
Good luck.



Could you please clarify the timing and source of appraisals:

Must the appraisal be completed PRIOR to an offer to purchase or is an appraisal done within 60 days of the
offer to purchase acceptable?

Could that appraisal have been completed by the lender holding the property or must the acquiring entity order
the appraisal?

Thank you for your question. Here is the appraisal guidance directly from the NSP Notice.

an appraisal made in conformity with the appraisal requirements of the URA at 49 CFR 24.103 and completed
within 60 days prior to an offer made for the property by a grantee, subrecipient, developer, or individual
homebuyer.

The appraisal may be completed by the lender holding the property so long as it is no more than 60 days old;
otherwise the acquiring entity will be required to have the appraisal done.

NOTE: APPRAISALS MAY BE DONE AFTER OFFER, AS LONG AS CLOSING TAKES PLACE WITHIN 60
DAYS OF APPRAISAL REPORT DATE.

Q: 49 CFR Part 24.5 Manner of Notices requires a Voluntary Acquisition Notice shall be personally served or sent
by certified or registered first class mail return receipt requested and documented in the Agency files. In today's
technology age and considering the deadlines associated with NSP (and working with financial institutions as
owners of the property) will HUD consider allowing Agencies to email the form to the Bank (owner) directly,
confirming receipt of the emailed form and having the Bank (owner) return the signed Voluntary Acquisition form
to the agency for properties purchased with NSP funds (i.e. financing mechanisms). This will save time and allow

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agencies to work directly with Banks in a timely manner.

Our relocation expert has provided this response to your question:

Since the requirement is regulatory, only a waiver of the regulations, substantiated by good cause would permit
such a process.

Should you wish to request a waiver, you should contact your HUD Field Office, which can help you to prepare
the request and then forward it to Washington for action. According to our website, that would be William Ward in
the Los Angeles Office at (213) 534-2580. I hope that information is still correct.

Good luck.

Q: Where there are no local taxing authorities and/or no property taxes levied, does the minimum definition of
abandonment revert to "when mortgage or tax foreclosure proceedings have been initiated for that property, no
mortgage payments have been made by the property owner for at least 90 days, AND the property has been
vacant for at least 90 days" unless the grantee provides a stricter definition in its Action Plan Amendment
submission?

Yes, you are correct; the Notice says mortgage OR tax foreclosure.



Can NSP funds be used on a mobile home in a mobile home park if the mobile home (personal property in
Michigan) is being repossessed due to lack of payment (like a car)? I am guessing NO, but our local officials
would like the answer to be yes, so I am asking.


You are correct on the mobile home; we can assist only if real property

I'm following up on the question about pre-buying NSP properties now and getting reimbursed for them once
program funds are available. I've got a community interested in acting on some property in short order if they
would be allowed to get funded under NSP. Have you been able to learn more about this (your first response
below...)

Unfortunately, we are hewing pretty closely to the Notice which limits pre-award costs to planning and admin. I
still advise trying to do upfront work like environmentals, and you could probably order an appraisal, but those
have to be within 60 days of the offer, so maybe early December is the earliest it would be safe. After the plan
has been submitted. It might be possible to do more project work.


Acquisition of vacant property is eligible. Does it have to be foreclosed or abandoned, or can it be any vacant
property?

Activity E allows acquisition of vacant property; such property does not have to have been foreclosed upon or
abandoned. Unlike Activity B, it need not be residential, either.

It is my understanding NSP funds can only be used to acquire foreclosed or abandoned properties. If this is
true, can properties acquired with other sources be redeveloped (rehabilitation of dwelling units or new
construction of single family homes) with NSP funds?
Yes, under Eligible Use A if acquired out of foreclosure (by city or non-profit, for example) or B if foreclosed or
abandoned. Only Eligible Use E supports new construction.

An example would be tax-foreclosed properties now in the Cities inventory.
Tax foreclosures are considered foreclosed, so they are eligible under Eligible Use B.
Vacant properties (including multifamily) could be acquired under Eligible Use E.


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Another example might be property remaining after a blighted structure is demolished with NSP funds that is
donated to City by owner.
Yes, under Eligible Use E.

If NSP funds are used to provide downpayment assistance directly to income eligible homebuyers does the
sales price have to be discounted below the appraised value?
Sale price must be equal to or below the COST to purchase and redevelop or rehab.

Does the home acquired have to be foreclosed or abandoned? Could they acquire a home where the bank is
allowing a short sale that would otherwise go into foreclosure?
It must be abandoned, foreclosed, or vacant. If the owner still owns the home, it cannot be acquired with NSP
funds. The legislation prohibits NSP funds to do foreclosure-prevention, and this would fall into that category.

Can NSP funds be used to pay educators to provide periodic counseling classes that interested participants
could attend or are we limited to paying only for individuals/households who become NSP beneficiaries?
Housing counseling is limited to “prospective tenants or purchasers of redeveloped properties.” Therefore, they
should be part of the program but HUD recognizes that not everyone who starts the process ends up buying a
house or renting one. On the other hand, they should not just be counseled through this program if they are not
on the list of prospective renters/buyers.

The local Habitat for Humanity holds the mortgage when they sell homes they build. If the City uses them as a
subrecipient, they will receive a small amount of revenue from the sale every time a house payment is made.
What requirements is any apply to this revenue?
Such revenue is Program Income, subject to repayment to the grantee. If this is structured as a Financing
Mechanism under Eligible Use A (and this may just be a matter of allocating the costs differently), then this
Program Income is not required to be repaid to HUD/US Treasury. The grantee may expend it for NSP eligible
uses.

See section II N. of the NSP Notice.

Note that third line should read, A, C and D (not E). We are correcting this typo.

If the City does enter into an agreement with Habitat or another subrecipient for new construction of 6 homes
and specific properties are identified, if the start of construction is spread over a three years summer 2009,
summer 2010 and summer 2011 will this fulfill the requirement to obligate funds within 18 months?
Yes, as long as the agreement legally binds Habitat to the construction. Preferably, sites will also be identified.
The more that the grantee can demonstrate the binding nature of the commitment, the better.

Please provide some examples of when redevelopment of vacant or demolished property for commercial use
would be an NSF eligible activity?

Financing the construction of a neighborhood grocery store in a target area. Mixed-use development with locally-
oriented shops on the ground floor and affordable housing above. Developing a small job-creating activity; this
might be hard in primarily residential areas, but for example, a housecleaning business could have its offices and
storeroom near homes (zoning permitting) without creating problems.




Is HUD developing any plan to help grantees acquire NSP funded properties in an efficient and expeditious
manor, whether it be HUD-owned properties or Bank-owned properties? We perceive this part as being very
difficult and time consuming, especially with an 18 month deadline to obligate all funds.

We hope to provide support along those lines. The Enterprise Foundation and LISC, along with some other
groups, are developing a service that will serve as a clearinghouse for bulk purchases from lenders and
servicers. It is planned to be up and running by January and is called the National Community Stabilization Trust.
I am sending a fact sheet. I don’t think their website is up yet. We also hope to work with FHA more to make their
foreclosed units easy to acquire. We recognize the pressure that the 18 month timeframe creates.
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In constructing the homes, because Habitat uses volunteers the cost to construct the homes are typically lower
than average. Once constructed, typically the house appraises $20,000 - $40,000 above cost. To protect the
families from predatory lenders Habitat sells the house to the family at the market value, makes the first mortgage
at whatever level in affordable to the family and makes a forgivable second that amortizes at the same rate as the
first. Are we to assume that if we provide NSP funds for construction that they can only sell the home to the
family at cost?

I have been wrestling with this and want to get another opinion. We have had the opposite problem with
acquisitions for the NSP program which require at least a 5% discount if purchased out of foreclosure.
Communities are concerned, with good cause, that this will create a downward spiral in values. Our advice has
been to work with the appraisers who can ignore “government actions” like the discount requirement. HUD has
had discussions with the Appraisal Institute and others to ensure that this will happen.

You are on the other side of the coin, but the answer may be similar. Perhaps just by recording the second deed
of trust, appraisers can see the true market value. By selling to the families at actual cost, it seems like you would
be meeting the NSP intent. The issue is how HUD would view the forgivable second. Let me bring this up for our
policy group. However, it seems to me like we should be able to make this work since the sale price is below
market value and does not exceed cost. Our financial management division has already discussed similar
program with the national office of Habitat. Maybe they already have the answer.




The city has an inventory of vacant properties, it would like to donate some of the lots that are located in the
areas with high foreclosure risk scores to our local Habitat to construct new homes that would be sold to families
with incomes<= 50% of median income.
1. Can we allocate NSP funds to Habitat for the construction of homes on these lots under eligible use E?
Yes, that’s the only Eligible Use, but is perfect for this purpose. Your activity would be disposition of vacant
property, which might only involve some overhead expenses if you are donating them.

2. Would this count toward 25% of NSP funds that have to be made available for housing for individuals whose
incomes do not exceed 50 percent of median income?
Yes

3.In selling the homes Habitat carries and services the mortgages, are the payments made by the buyer
considered program income to Habitat and does it have to be returned to the City and after five years to HUD?
This area is undergoing clarification and so remains a little unclear. What is clear is that, using Eligible Use A,
Financing mechanisms (I assume), exempts the city from the 5 year limit. That only applies to B and E and is
reported to be under congressional review to be eliminated altogether. So, the program income will belong to the
city indefinitely for NSP-eligible uses.

How we calculate that Program Income is the confusing part right now. This will be worked out pretty soon so it
should be straight by the time you start. It’s just that NSP legislation, CDBG regs, and HOME regs all treat it
differently. The most conservative approach, as far as I can tell until we get the promised guidelines, is that
Habitat would have to return to the city a proportional share of income. Potentially that could include the monthly
x% of total costs net of operating expenses that you have subsidized, plus x% of sale proceeds. The more liberal
interpretations would follow the HOME program’s recapture/resale provisions. Sorry we do not have something
solid yet; we talk about it daily, so it definitely will emerge.

I hope this helps. Sounds like a great program. Write back if you need more.


The HUD-NSP regulatory definition of "Current Market Appraised Value" states that the appraisal must
be…"completed within 60 days prior to an offer made for the property…"


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Is this definition intended to prohibit conducting an appraisal after an offer is made? (The pre-appraisal offer
would be contingent upon the results of the appraisal.

Yes, the appraisal is supposed to precede the offer, not follow an offer that is contingent on it.

Follow up email:

Is there any wiggle room in your use of the word “supposed?”

I am sure you have heard comments about the impracticality of obtaining certified appraisals prior to making an
offer. This requirement not only adds time and expense, it also may cause many, many false starts. In this
market, not many owners will be willing to take their property off the market while we obtain an appraisal,
particularly if we are not allowed to make a pre-appraisal contingent offer.

The Dearborn Code of Ordinances establishes local law for the valuation of properties that the city intends or
hopes to acquire. Dearborn Code Section 2-576(b)(1) requires: determination of the market value of the property
as indicated by the assessed and equalized values of the property from the city assessor’s records; an opinion of
value from the city assessor’s office; and, determination of value as reflected by any recent comparable sales in
the immediate area. This process and the required HUD-NSP purchase discount would establish a firm basis for
a pre-appraisal contingent offer.

City Assessor My City Assessor tells me that it would be improper for a duly certified appraiser (USPAP) to
consider the amount of the pre-appraisal offer in their determination. And, while HERA requires a determination
of “current market appraised value” it does not speak specifically to the timing of that appraisal.

The City of Dearborn also has a locally funded stabilization program and has already established a pattern of
purchasing properties well below-market value. I am certain that we can meet HERA’s requirement to do the
same with our HUD-NSP funding.

Is there any flexibility?

Response:
I don’t know if you were on the conference call last Thursday with HUD’s Detroit office. I mentioned that we have
modified our previous position to allow offers contingent on appraisals. Closing would still have to occur within 60
days of the date of the appraisal report, but this mechanism should make your life easier. Thanks for your well-
reasoned appeal. Good luck.


There is a house that was foreclosed on. A realtor purchased the house and we want to purchase it from them
for roadway purposes (plus the house is blighted). Would this home qualify under abandoned/foreclosed upon
home?

Unfortunately, no. Once purchased out of foreclosure, it no longer qualifies for purchase under Eligible Uses A, B,
or C. It is possible that, if it’s vacant, you could acquire it under E, Redevelopment. That use does not permit
rehab, so you’d need some other reason to redevelop it.


If a municipality completes a tax foreclosure on a property and keeps it vacant waiting for the market to rebound,
would such a property be eligible for NSP funding? This is okay. Sounds like an incipient land bank, depending
on the strength of your market. Or, you could rehab (if necessary) and sell at a deep enough discount to make it
affordable and marketable, using the NSP as subsidy that perhaps you did not have before.

Would there be a difference in eligibility if the building was foreclosed on and vacant vs. foreclosed on and
operating under this scenario?

NO
The regs allow purchase of homes that have been abandoned or foreclosed upon. They define what the

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minimum time periods are, but not any maximums. Perhaps these definitions from the NSP regs will help:




Would funds be considered obligated if the City were to enter into a contractual agreement with a developer to
acquire and rehabilitate a specific number of properties using a specific amount of NSP funds within a specific
time frame, but the properties are not identified by specific address within the contractual agreement? The
contractual agreement would contain specific criteria (i.e., geographic location) to be used in selecting individual
properties.


We discussed this topic today. In general, it sounds like this would qualify as obligating funds. The fact that you
have not identified specific properties did not concern our finance expert, provided it is a binding contract. OMB
Circular A-87 describes it this way.

"Contract" means a mutually binding legal relationship obligating the seller to furnish the supplies or services
(including construction) and the buyer to pay for them. It includes all types of commitments that obligate the
government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In
addition to bilateral instruments, contracts include (but are not limited to): awards and notices of awards; job
orders or task orders issued under basic ordering agreements; letter contracts; orders, such as purchase orders,
under which the contract becomes effective by written acceptance or performance; and, bilateral contract
modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301 et seq.


Former owner is still living in a property, as a tenant, in a lender-foreclosed property, would the NSP grantee be
required to pay relocation in order to acquire the property?

In the situation where you have a home that “has been foreclosed upon” (required by NSP), the former-owner
who is still in the property is usually no longer an owner (State law is going to dictate here). The former owner
may be a tenant, if the new owner (the lender) has allowed them to stay under a lease agreement…or, they may
not be a legal occupant and may be subject to a pending eviction (again, state law will dictate here). So,
grantees need to be very careful about determining an “occupant’s” status and entitlements. An unlawful
occupant (see 49 CFR 24.2(a)(29)) who is displaced for an NSP-funded acquisition will not be entitled to
relocation assistance and payments. However, a lawful occupant displaced for an NSP-funded acquisition will
generally be eligible for relocation assistance and payments under the URA.


Is there any reason for concern about donated properties for NSP projects? We have a community that stands to
have several blighted properties donated (under use D) by the current owner.

I ask because on a COSDCA call this issue came up about 2 weeks ago. HUD (not sure who) expressed some
concern at the time, The example that was raised fell apart for other reasons (multiple transactions and owners,
etc) so the issue of the donation itself was not explored/answered.


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The concern I heard might have had to do with the discount rules, I'm not sure.

Donated property is fairly common here and may be a good tool for our communities under all of the
circumstance of the program. Any guidance is appreciated.

I did not sit in on the COSCDA call. The concern might have been that A, B, and C all require foreclosed or (in B)
abandoned or foreclosed property. Unless it was being donated by a lender out of foreclosure, that could be a
problem. In that (probably unlikely) event, a 100% discount should meet the test. However, as soon as the
property has been out of foreclosure (e.g. investor purchase), it no longer qualifies for NSP.

You can demo non-foreclosed property under D and redevelop it under E. That seems like the cleanest track.




The NSP Submission Template & Checklist requests the following:

E. ACQUISITIONS & RELOCATION
Indicate whether grantee intends to demolish or convert any low- and moderate-income dwelling units (i.e., ≤
80% of area median income).

What is the meaning of term "convert"? Can you clarify what activities would be eligible under the term
"convert"? Thanks

This means converted from low-moderate income affordability status. The Notice exempts grantees from the
normal one-for-one replacement requirement for such units but does require that they report on any.


We anticipate purchasing foreclosed upon multi-family rental buildings with NSP funds for the purpose of
providing affordable rental housing opportunities to households whose income are below 50% AMI. We would
enforce the tenant income and affordable rent requirements through long-term affordability covenants. Our
question has to do with existing tenants residing in the building at initial purchase who may be over-income
(above 120% AMI). Is it necessary to dislocate existing over-income tenants reside in a building upon
purchase? Or, can we allow all the existing tenants to remain in the building and require that all future tenants
meet income eligibility requirements and have affordable rents? In other words, allow all the existing tenants to
continue to reside in the property and upon their moving out sometime in the future, require that all new tenants
meet income eligibility requirements and affordable rents. Thank you.

HUD recently decided to allow less than 100% LMMI in NSP projects. We will permit NSP to support a % of cost
not to exceed the % of LMMI, probably adjusted for square footage or something (to avoid having all the LMMI
units being 0 BR units).

URA requirements. If a vacant foreclosed property is being acquired with NSP funds, do we have to require the
owner (lender) to provide us a list of the occupants (if any) who were in the property 90 days prior to the initiation
of negotiations (in this case the offer to purchase?). The foreclosing lender has the legal right to evict the
previous owner and any tenants with proper notice and they routinely do so. It is highly unlikely that prior
occupants were displaced in anticipation of government funding -- they were evicted as a result to the normal
foreclosure legal process. Would such residents have to be notified and considered eligible for relocation
assistance?

An NSP recipient has a responsibility to determine whether or not the use of NSP funds for acquisition,
rehabilitation, demolition, or conversion will result in displacement which would be subject to the relocation
requirements of the URA and/or section 104(d). So, yes, the recipient should seek to determine from the owner
(lender) if there were/are any occupants in the property, prior to the applicable date of the “initiation of
negotiations”, and whether or not they were legal occupants. State law will dictate the legal status of any former-
owner who is subject to eviction as a result of the normal foreclosure process. Both the URA and section 104(d)
regulations address persons who are not eligible for relocation assistance, including persons subject to “eviction

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for cause” under applicable State or local law. See the sample notices developed for NSP at:
http://www.hud.gov/offices/cpd/library/relocation/nsp/index.cfm If the recipient is concerned that a particular
piece of property will incur relocation assistance payments which they are not willing to pay, the recipient should
not negotiate for that property.



Action Plan Amendments

Do we have a process for our grantees to gain access to DRGR or a form they can submit? We would like to
send out forms to our NSP grantees for getting LOCCS and DRGR access, as most of the entitlement grantees
do not have access to LOCCS. The approval process can sometimes be lengthy and we would like to get the
ball rolling on this.

Thank you for your questions. Information on DRGR access is currently available on the NSP website. See link
below.

http://www.hud.gov/offices/cpd/communitydevelopment/programs/drsi/drgrs.cfm

Following the 15 day public comment period, are we required to hold a public meeting to gather any final
comments?

NO, there is no required public hearing.


The Certifications page at the rear of the Submission Template & Checklist. In the submitted proposal do you
require just this list signed or is the expectation that the submission will include separate documentation on each
of these sections

You just sign it as evidence of your promise to comply.

When developing your Action Plan, do the redevelopment activities have to be specific projects? Can you
identify areas and potential projects instead?

Be as specific as you can but HUD realizes that grantees will not have all the information needed within the 60
day application period.


If the State is the applicant for NSP funds for other entitlement areas, is only the State and not the subgrantees
required to have its ConPlan amended by 12-1-08? Or does this requirement trickle down to those entitlement
areas included in the State’s NSP application?
This excerpt from Section B, Requirement 2 a. of the NSP Notice (attached) addresses your question on Con
Plan amendments.




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This part of the background of Part B, (top of the third column on page 58332 of attached Notice) should be
considered for citizen participation.




We are trying to use the template for the for the amendment submission that has been posted on the HUD
website. "Section G" of that template calls for information for each activity andthen asks for fairly specific
information. As the state we want to leave avenues open for communities to address their different problems and
so our plan will be fairly broad in terms of the range of activities we expect to undertake. Will that meet HUD's
expectations for the activity description section of the amendment? Is there any guidance you can give us as to
the level of specificity required for this section?

I want to get input from Diane, Steve, and/or Eva in State and Small Cities on this. I will copy them and they can
reply directly to you (though I’d like a copy also, to know what you are saying on these questions.) One thing we
have been telling grantees generally is that HUD recognizes the difficulty that the deadline poses, and therefore
will be flexible in considering later changes. I think this program would be very tough for most states to handle
quickly. Thanks


What is the time frame to receive authorization to use the DRGR? Will there be training available for new
grantees on this system? If so when?

There is a web-based training program at the site below, part of our growing NSP website. The three national
training sessions completed last week offered some training; it is not clear whether more will be offered. This site
has a Help function and other support services. If that does not answer all your questions, Mark Mitchell is the
DRGR guru. His phone number is 202.708.3587.

http://www.hud.gov/offices/cpd/communitydevelopment/programs/drsi/drgrs.cfm


Will linking to my Consolidated Plan satisfy Part A of the Substantial Amendment?
If I understand you correctly, the answer is no. The Amendment does link to your Con Plan, but the NSP Notice,
attached, requires additional information. Much of that information involves identifying areas of greatest need,
based on foreclosures, subprime loans, and risk of future foreclosures. Last week I sent you some explanations
of how to find that information, so maybe this question is out of sequence.


What should be put in under the Applicant Identifier on the SF-424?
If you have your own number for a tracking system, you can put it in there. Otherwise, just leave it blank.

In the provided SF-424, Application for Federal Assistance their is data in blocks 1,9, and 10, will this be
corrected before NSP grantees submit the application?

The Department is trying to correct minor glitches. However, the grantee can just delete the text that is in those
boxes and insert the correct text. I just tried it and it accepts changes like that. Remember that the forms cannot
be saved once they are filled out.



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Our office has received a couple of questions about the SF-424 Form. Specifically, does the SF 424A have to be
completed in addition to the SF 424? If so, how would a grantee fill out Section D? This does not seem applicable
to this grant since the grantee will be receiving a specific allocation that must be expended within a finite period.
Thank you!

No. SF-424 A does not have to be completed. The website was updated today with a version of SF-424 that
does not include Section A.

The subject document is 8 pages long and includes a budget form as well as a certification page for signature.
Does HUD want the NSP application to include the budget form and certifications that are found in SF424A and
SF424B?

The website has been corrected. There is only one page plus instructions now, at:

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/afa.pdf


We have a question specifically regarding slide #55. It was our understanding that if the City were to purchase
property and sell it, the sale price could not exceed the purchase and rehabilitation costs. The scenario in slide
#55 does not appear to be accurate as the sale price of $225,000 was more than the amount of NSP funds
expended on the property, is this correct? Slide #51 mentions that any revenue from the sale of NSP acquired
property must be provided to and used by the local government. Slide #53 indicates that program income
received before July 30, 2013 may be retained by the City, if it’s treated as additional CDBG funds and used to
carry out additional eligible activities. Am I correct in interpreting that this program income (generated by the sale
of NSP acquired property) can be retained by the City and then used to purchase other foreclosed properties?
Or, can the City return this program income directly to HUD without creating a “revolving fund”? The City is
contemplating an across the board 15% discount from the current market value. We would like to confirm
whether or not maintenance and upkeep for acquired properties are considered preservation and therefore
eligible costs for NSP funds? We would also like to confirm that in our submitted NSP Substantial Amendment
we can provide 3 separate options for use of the 25% of funds that must go to homebuyers with less than 50% of
AMI? Also, the Federal Register indicates that we must publish on our website and in the newspaper a
“proposed plan” in order to give the public 15 days to respond. What constitutes a “proposed plan”? Thank you.

The grantee cannot make the initial sale to a homeowner for more than the cost of acquisition and rehab (see J.
Sale of Homes). However, this restriction does not apply to investor properties. In those situations, down the line,
the property can be sold for a higher price. This example is dealing with a multifamily property, not a single home
occupied as a primary residence.

In addition, in the future, a home that was sold at cost to a person who uses it as their primary residence can also
be sold at a profit. The sale price will then become the basis of a program income calculation. Currently, CDBG
rules would require that if the NSP share of costs was 20%, then the Program Income would be 20% of Total
Sale Proceeds. This is different than in HOME. This subject is still under discussion here in HQ. Program income
is returned to grantees who must use it for NSP-eligible purposes, not necessarily for revolving loans.

Maintenance and upkeep are eligible under Eligible Uses B, C, and E as Disposition (570.201(b).

Submitting a plan amendment with three options is unlikely to be acceptable.

Proposed plan means final draft of the NSP amendment.


Do grantees have to “publish on their website and in the newspaper a “proposed plan” in order to give the public
15 days to respond”? Slide 13 gives the impression that just posting it on their webpage is acceptable for
compliance purposes????????

At minimum, the following applies. Grantees are always encouraged to do more.


                                                                                                       Page 12 of 99
b. Each grantee must prepare and submit its annual Action Plan amendment to HUD in accordance with the
consolidated plan procedures for a substantial amendment under the annual CDBG program as modified by this
notice or HUD will reallocate the funds allocated for that grantee. HUD is providing alternative requirements to 42
U.S.C. 5304(a)(2) and waiving 91.105(k) and 91.115(i) to the extent necessary to allow the grantee to provide no
fewer than 15 calendar days for citizen comment (rather than 30 days) for its initial NSP submission, and to
require that, at the time of submission to HUD, each grantee post its approved action plan amendment and any
subsequent NSP amendments on its official website along with a summary of citizen comments received within
the 15-day comment period. After HUD processes and approves the plan amendment and both HUD and the
grantee have signed the grant agreement, HUD will establish the grantee’s line of credit in the amount of funds
included in the Action Plan amendment, up to the allocation amount.


Items 1-3 below are direct questions our office received from a grantee. Any guidance will be greatly appreciated.
        1. Type of submission: Construction or non-construction? I believe it should be both since the funds
            are going to be used for acquisition, Rehabilitation, Disposition and Mortgage Assistance and
            administration. The form only lets me select one so I was thinking of selecting construction. What do
            you recommend?.
        2. Is this application subject to the State executive order 12372 process? (Question #16)
        3. Should I fill out the Budget Information Page for the non-construction Programs since I am selecting
            non-construction if I can only select one? Again it asks for the Catalog of Federal Domestic
            Assistance Number and estimated unobligated funds. Wouldn’t all our funds at this point be
            unobligated? Would I just place the construction budget under construction? Would I also budget
            the expected Program Income in this budget since it has a section for Program income? Please give
            me an example of the budget page if you can.

1. This box is not necessary; please tell the grantee to ignore it
2. No.
3. Grantees do not have to complete the budget information page. There is an updated SF-424 on the NSP
website that does not include the budget page.


In the DRGR system, when I am entering activities, there is no activity that says Land Banking or that may be
close. Which activity should be used for that?

The next question is also related to the DRGR and if my activity does not match the action plan that I am
creating, is there another possibility in the choices?

Another question is, in my plan, I am taking into account the 25% set aside for the 50%AMI HH but am not setting
aside the money in a separate activity but as part of a strategy. How do we split the NSP and NSP 25%?

Sorry not to do it earlier, but we have been focused on getting new accounts set up. I just added an activity type
called Land Banking (NSP Only). Let me know if you run into any problems accessing that when adding or
editing an activity. There is the option of adding other activity types, but they have to remain pretty standard and
I would have to clear any request for a new activity with my director.

In our disaster grants, we usually ask grantees to break out local programs whenever there is a different national
objective, activity type or responsible organization administering the activity. In this case, we are trying to track
spending towards the 25% requirement as required by the appropriation so we need grantees to track and report
it in a way that allows us to check progress against that requirement. In most cases, grantees track the financial
and performance information separately for the parts of programs and then record this as different activities. I
have attached a screen shot showing an example of a project split into 2 activities.




                                                                                                      Page 13 of 99
You've changed the NSP Grant Submission Template! But we've substantially written our Activity Descriptions
using the original outline format. (Admittedly it was a tad strange to answer Question 8 and then Questions I and
J, but...) Do we have to re-do our Descriptions based on your Updated Template or will you accept them in form
consistent with the original?

Sorry, sometimes what we see as improvements are confusing. It’s only a suggested format. As long as you have
all the material required in the Notice, it will be fine in any format.


Affordability Requirements

I received these questions. I answered “yes” to the first, but I can’t answer the second. In the HOME program the
period of affordability for downpayment assistance is based upon the amount of HOME invested. So if $10,000 is
invested, the period is 5 years. If $20,000 is invested, the period is 10 years.

1. When NSP wants grantees to define continued affordability and refers to the HOME regs as a minimum
standard, does this mean go with the affordability periods established by HOME based on the dollar amount
invested?

2. This brings up another question, if HOME and NSP funds are combined into one project, which regs prevail?
For example, if we invest $10,000 of HOME and $10,000 of NSP for homebuyer down payment assistance,
would the period of affordability be 5 years for each program and run simultaneously, or would it be 10 years
because the funds are combined?

Yes on #1. I think that on #2 the period of affordability should be calculated on the total and not run
simultaneously: the combined value should be gauged against the HOME sliding scale, since it’s $20,000 overall.


If we adopt as a minimum the HOME requirements for the long term affordability can we also apply the resale or
recapture provisions as we choose, justlike HOME? So for example, if we set up a soft mortgage product to help
people purchase vacant homes is it acceptable to structure it like we do the HOME loans using the recapture
provision? Does that meet the intent of "as long as feasible"?

Also as we structure these, if we chose to use the HOME limits do we need to follow all of them? For example,
would we need to ensure that the household would get their investment of funds out first at sale, like HOME?

You have a lot of flexibility in structuring. The only place that HOME applies directly is in the long-term
affordability, where its terms are used as a "safe haven". That is, you can require longer affordability periods, but

                                                                                                       Page 14 of 99
generally not shorter ones.

Otherwise, you are not bound by the HOME rules, but can impose requirements that meet your needs and which
may diverge from HOME regs.


1) Is the data HUD used to do its analysis for areas of greatest need and allocations available to localities? If
yes, how can it be accessed?

2) For the homebuyer activity, would a condition of shared equity between the homebuyer and the lender (in this
case the RHA) meet the requirement of "ensuring continued affordability"?

There is a wealth of needs data designed to help grantees assess areas of greatest need, on the following
website:

http://www.huduser.org/publications/commdevl/nsp.html

It is a subset of the main NSP website at:

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

Regarding continued affordability, it is really a two step process. First, the county must define “affordability” (e.g.
“monthly payments not to exceed 30% of household income”.) In order to reach that figure for any particular unit,
your underwriting analysis will result in a figure; for example, you might have to write down the price of the house
by $10,000.

Then, the continued affordability requirement kicks in, which is related to the length of time that the unit must
remain affordable. HUD has offered the HOME program standards as a safe haven; communities guaranteeing
periods at least as long as those will meet the test. I have attached the relevant HOME regulations, but here is
the quick summary, for ownership and rental programs: Thus, in the example above, a $10,000 subsidy of an
ownership unit would have a 5 year minimum period of affordability.


In leveraging NSP funds with other private funds to create rental housing, do ALL of the units created need to be
affordable?
Yes. HUD’s current policy is that NSP funds cannot be prorated; therefore you could not operate your program in
this way. However, the subject is under active discussion and the policy may be liberalized. HUD has interpreted
the legislative mandate that all NSP funds benefit LMMI persons in a literal way, meaning that any mixing of
funds might violate the longstanding CDBG rule that projects assisted in whole or in part with these funds must
meet all requirements. On the other hand, one can make a reasonable argument that, as long as the NSP funds
only benefit LMMI persons, the additional funds would not undermine the legislative intent. This approach would
also support the Department’s goal of promoting mixed-income communities.
NOTE: THIS POLICY HAS BEEN CHANGED TO ALLOW PROPORTIONAL FUNDING OF PROJECTS WITH
LESS THAN 100% LMMI.


What type or types of events triggers the continued affordability monitoring we must do

Generally with houses that are sold subject to the affordability restrictions, the grantee will place a second deed of
trust or other recorded instrument on the deed. This ensures that the grantee will be notified in a sale. At that
point, you can determine whether the affordability period has been completed.

With rental property, the same mechanism would be put in place. You would also need to ensure that rents remain
affordable and that tenants meet the income limits. The attached HOME regulations describe one such process
(note that 252 is rental, 254 is sale). You may design your own if it meets these standards at minimum. I hope this
answers your questions.


                                                                                                        Page 15 of 99
If we target households up to 120% AMI for homeownership in multifamily properties (1-4 families) rather than
neighborhoods with 120% AMI population, do the renters in the multifamily have to meet 120% income limits or
just the homeowners?

If we target neighborhoods which are predominately at 120% AMI rather than individual households, how do the
long term affordability requirements work?

The income eligibility for all housing assistance is determined by the end user. Any household that you assist must
meet the 120% of AMI requirement. You are required to establish affordability periods. The attached HOME
standards are considered a minimum; they vary according to the amount of subsidy per unit.

(attachment is 24 CFR 92.254)

Since we are stating that NSP funds are an extension of CDBG funds, are we holding the entities to provisions of
24 C.F.R. 570.203 and 570.505, when it come to HUD adding on five years from the end of the communities
projects.

I have looked at the NSP notice and do not see any waiver of this requirement. Please advise, since this may
impact our grantees implementation programs. Thanks

The 5 year requirement applies to property acquired by grantees and improved with at least $25,000 in grant
funds. In the NSP program, most properties will not be held by grantees and the housing affordability periods set
by grantees will define the term. Grantees may acquire land for land banks, but in these instances it will probably
not be improved. The Notice in Part E says the following on land bank holding periods.

However, HUD does not believe the benefits of just holding property are sufficient to stabilize most neighborhoods
or that this is the best use of limited NSP funds absent a re-use plan. Therefore, HUD is requiring that a land bank
may not hold a property for more than 10 years without obligating the property for a specific, eligible
redevelopment of that property in accordance with NSP requirements.

Where a publicly owned and improved facility, like a homeless shelter or neighborhood center, does meet the
tests in 570.505, it is expected that the rule will apply.


Can a local government purchase a foreclosed home that exceeds the current FHA or conventional “loan” limits?

There is no set limit, but affordability standards and reasonableness of costs could limit purchases of high value
homes. The grantee can set its own limits.

How will the long-term affordability requirement work for homeowners who purchase a property and then resell
within the long-term affordability compliance period (up to 15 years) if AMI at resale is less than when the property
was purchased?

Issues:
□ The seller may be in a situation where they are forced to sell for less than the purchase price, or even less
than their mortgage principal, if the AMI is lower at resale than at original purchase.
□ The seller may not build equity, which may affect attractiveness of original purchase in markets with high
supply and low prices.
□ If many homes are purchased and sold in the same neighborhood with NSP funds, artificially low price caps
could affect the home prices across the neighborhood.

This question highlights the need to develop a basic understanding of the HOME affordability requirements related
to homeownership housing among NSP grantees. I suspect that this question comes from a grantee that does
not administer HOME, or if it does, from a staff person administering NSP who is not involved in HOME.

PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE MODIFIED IN RELATION TO THE INTERPRETATION OF

                                                                                                     Page 16 of 99
PROGRAM INCOME.

If a grantee wants to rely on the HOME affordability requirements for NSP, it needs to have either resale or
recapture provisions (or it could have both and apply one or the other to homeownership units at the time of
assistance). In the HOME program, PJs develop their own resale or recapture requirements (they need to meet
basic requirements outlined in 92.254). In deciding which option to use and how to structure the option, these are
exactly the kinds of questions that the grantee needs to consider and design for. There is no one answer for this
grantee. They need to educate themselves about the options they have and decide what is going to work for
them. (For instance, under the resale option the price on subsequent sale is restricted and the unit must be sold
to another low-income buyer. Under recapture, the homebuyer can sell to anyone at market price, but some or all
of the NSP assistance must be recaptured from net proceeds. If there are no net proceeds because prices have
declined, then there is nothing to recapture.)

I suggest that you link the following to your website – it is Chapter 5 of the Building HOME manual and refer
people who need assistance understanding HOME affordability requirements to pages 5-14 through 5-21.

http://www.hud.gov/utilities/intercept.cfm?/offices/cpd/affordablehousing/training/materials/building/ch05.pdf


The county does not undertake any affordable rental housing projects with CDBG funding and has adapted the
HOME affordable rents definitions for our HOME activities. Could you please confirm whether or not the HOME
affordable rent definitions are acceptable for the NSP plan amendment and program use?

Yes, using the HOME standards is a “safe haven”, though you can specify higher standards. You don’t describe
your program, but if it involves ownership, you would want to adopt a standard for owners as well. This could be
as simple as HOME’s standard that housing payments should not exceed 30% of household income, for example.
Hope that helps.

Demolition

One of the eligible activities under NSP is demolishing blighted structures. A property acquired for this kind of
activity, does it has to be foreclosed? Or can any blighted property, defined as such according to city ordinance
(regardless the status of foreclosure) be considered under this eligible activities?

Any property that meets your definition of blighted can be demolished with NSP funds.


Demolitions – My understanding is that it does not have to be a foreclosed or abandoned property. Is that true?
Does it have to be in an area that is under 120% of median, or can it be anywhere? If we don’t foreclose on the
lien and just let it be paid off later, is that OK? We do not have to use it immediately or at all to build a new house
for an eligible homebuyer, right?

You are pretty much on target. The structure has to be blighted, according to local definition of the term, but it can
be anywhere. The national objective will come in when you sell it or build something, which must benefit LMMI
people. You cannot hold it forever; the regs suggest 10 years as an outer limit. There is no requirement to take
title or pay off the lien(s).

Thanks for your response, but I think I miswrote the question I wanted answered.

There is a blighted structure, owned by a private owner.

We condemn the property and demolish it. We put a lien on the property.

We might foreclose on the lien– or we might not. We may just wait till the lien is paid off. If we foreclosed on the
lien, we would of course build an eligible unit. But we might not do anything. Is that OK?
That would be okay. Sorry to take so long responding; it’s been a little hectic.

                                                                                                        Page 17 of 99
If a grantee or subrecipient purchases an FHA-owned property, can we demolish it without prior approval from
HUD? I am asking because the CDBG regulations, at 570.201(d), state: "Demolition of HUD-assisted or HUD-
owned housing units may be undertaken only with the prior approval of HUD."

Once you buy it, it is no longer HUD-owned. Section II P of the NSP Notice does not come right out and state this,
but its title is: Note That FHA Properties Are Eligible for NSP Acquisition and Redevelopment (accent on the
redevelopment).


When using NSP funds to demolish blighted properties, do we have to redevelop those properties? Can we used
the now vacant lots to develop a park or green space?

The demolished properties do not necessarily have to be redeveloped. The vacant lots can be used to develop a
park or green space.

It states in NSP that you can demolish blighted structures.

Can you acquire and demolish blighted structures? If so, do they need to meet the requirements of purchase
under PURCHASE AND REHABILITATION i.e. property must be “abandoned” or “foreclosed” upon? Or, can it
simply be a “blighted” structure?

We plan to demolish structures through our “fast track” process which is basically a legal process as a
government entity to remove blight quickly. Once demolished, we lien the property. Someone was under the
impression that you could only undertake demolition if you are a land banking under l/M area National
Objective.

You may demolish any blighted structure under Eligible Use D; acquisition is not required, so your fast track
process would be fine. This does not require a linkage to land banking. It could also lead to redevelopment of the
vacant property under E, including new construction of housing on the cleared land.


Are NSP funds allowed to be used for commercial demolition providing it is in a 120% LMMI census tract and is in
fact, a blighted structure?

YES. NSP funds can be used to demolish any blighted structure in your target area or a LMMI tract.


The City of Dearborn's proposed NSP-Target area contains a significant volume of pre-1940 construction on 30-
35 foot wide parcels. Acquiring and clearing blighted structures in these neighborhoods will provide an
opportunity to address this issue of substandard lot sizes by combining the cleared property with adjacent parcels.
You have previously responded that, if the clearance activity meets LMMI area benefit objectives, the cleared
property can be sold at current market value to any buyer under CDBG change of use regulations.

If all or a portion of a cleared property is conveyed to an adjacent property, whose owner-occupant household has
income at or below 120% AMI, for the purpose of creating a larger lot size (which in turn might allow or encourage
that property owner to remedy or partially remedy non-compliance with local building, zoning or fire safety
standards), could this be considered to be an eligible reuse of the property? And therefore, could the property be
conveyed or DONATED to the LMMI neighbor at less than current market value?


Yes, if the person meets the income limits as you say.


If we use the NSP funds to demolish a blighted, privately owned structure but never acquire or land bank that lot,
do we still need to develop the lot within 10 years? Or can demo be a stand alone activity?


                                                                                                    Page 18 of 99
Demo can stand alone, except that, if outside a LMMI area, needs some end use that benefits LMMI. If still vacant,
it may become ineligible.

You do not have to own it, do not have to land bank it. Once vacant, you may Redevelop under E, including public
improvements.


Can NSP funds be used for demolition of abandoned properties regardless of whether they have been foreclosed
or not?

Yes, this may be eligible under eligible use D, provided the structures meet a local definition of “blighted”.


Distribution of Funds

Do you have to have an application process for other entities who may want to apply or are the funds to be
distributed at the City's discretion?

Thank you for your question. Local governments that do not receive direct NSP grants are eligible to receive NSP
funding from the state’s appropriation. Private organizations that would like to work on NSP activities must
consult NSP grantees. The NSP grant submission process is for designated NSP grantees. Information on
receiving your NSP allocation is currently available on the website.


How can the City of Miami Beach, an Entitlement Community in Miami-Dade County, receive its share of
foreclosure relief funding?

Thank you for your question. Local governments that do not receive direct NSP grants are eligible to receive NSP
funding from the state’s allocation. Florida State’s allocation is just over $91 million.


We are a CDBG entitlement/non NSP entitlement located within a county (Cuyahoga, Ohio) that is an NSP fund
recipient. Since our city (Lakewood, OH) has a need for these funds (based on the data), in their action plan, can
the Cuyahoga County provide NSP funds for Lakewood? Or is Cuyahoga County to serve only the parts of the
county, regardless of need, who do not report up to the state?

In this case there are 2 County recipients of NSP- Euclid, OH and Cuyahoga County, OH. The following CDBG
entitlements in Cuyahoga County did not receive NSP funds- Lakewood, Parma, Cleveland Heights, and East
Cleveland (and are therefore part of the Ohio state-wide NSP).

Is Cuyahoga County, by receiving NSP funds, obligated to create an action plan to serve the ENTIRE county or
are they to serve only Cuyahoga County except for Euclid, Lakewood, Parma, Cleveland Heights, and East
Cleveland?

Ultimately, we want to know if we will be receiving funds from both the State of Ohio AND Cuyahoga County
(based on need).

Thank you for your questions. There is nothing in the statute or Federal Register Notice that prevents urban
counties from using NSP grants to fund CDBG entitlement communities within their jurisdiction. However, the
allocation formula was designed to inflate state program allocations in order to provide NSP funds for entitlement
communities that did not receive direct appropriations. Please take this into consideration as you determine the
best way to use your NSP funds.


How can an entitlement city (HUD Participating Jurisdiction) receive its share of the funding that has been
allocated to the California State Program?
Also, the guidelines for use of funds is out and already published through the California Redevelopment

                                                                                                       Page 19 of 99
Association. Why is it not posted here in E-Civis? I have already downloaded the information and received it
through another source. E-Civis should have it as a attachment to your grant announcement.

Thank you for your question. We are instructing all CDBG grantees that did not receive direct NSP allocations to
contact their state program to apply for NSP funding. Also, please visit the NSP website, information on NSP is
being updated daily and many of your questions should be addressed on the website.


1. Without executing a joint request, can urban counties use NSP funds in areas where the jurisdiction is a NSP
   entitlement?
2. What about in the case of an entitlement that did not receive a NSP allocation?

1. Yes, either through direct county action (with the agreement of the city) or through a subrecipient agreement. A
joint agreement is only needed if the County is managing the NSP funds for an entitlement within its jurisdiction
that received a direct NSP allocation.

2. Yes, however, these communities must be included in the areas of greatest need.

In addition, either type of entitlement city may also receive funding from the state.


We work in an Entitlement Community and also have neighboring cities in need of funding assistance through the
NSP. I assume that since the Entitlement Community and neighboring communities were not directly awarded
funding, an application (Plan) should be submitted to apply for the State of Illinois funding allocation.

Many of the local communities do not have staff nor the ability to seek the assistance being provided through the
Housing and Economic Recovery Act of 2008. What is the best option for assistance in securing funding for these
markets experiencing extensive distress due to subprime mortgages, foreclosures, abandoned properties and
high unemployment conditions?

Many communities are in your situation. Even those with real estate programs rarely operate at the scale now
required. First, you would need to apply to the State of Illinois for funding. We have been encouraging
communities to form collaborations to pool resources so that capacity can be developed cost-effectively. This
might take the form of joint agreements or could involve having the state operate programs directly. I am unsure if
states are planning to do this, so you’d need to contact IL and discuss it. Regardless, it seems best to look at
some sort of joint program, as it makes no sense to have duplicate programs with the attendant costs right next
door and pooled resources will allow the acquisition of the best qualified staff.


Franklin Township (Somerset County, NJ) is a CDBG entitlement community but is not listed as an eligible NSP
Grantee. We are wondering if it still possible to receive some form of assistance under the state of NJ NSP
program.

Yes, you may apply to the State of New Jersey for NSP funding. I could not find a direct link to their program, so I
am sending this information about HUD’s Newark Field Office. Chris Soucy or Lucille Spada should be able to put
you in touch with the right people in Trenton.




Could a state or urban county define “greatest need” to the city level, or would you think that it ought to be more
targeted so that it would be defined at the census tracts and block groups level?


                                                                                                      Page 20 of 99
The more targeted the better. Unless the city is small and the need widespread, it would be pretty hard to focus
the funding meaningfully at the city level.


Can a County, that is receiving an NSP grant, fund an activity located in a City within its boundaries that is also
receiving a direct NSP grant?

Yes; it could treat the city as a subrecipient or could act directly (with city approval). And, though I don’t think you
are asking this, the county and city could apply jointly and one would operate the program on behalf of the other.
There are many possibilities for collaborations and we are encouraging grantees to use them. The scale of the
problem and the limited capacity for major real estate programs make cooperation valuable.


We are an entitlement Community and we have NSP funds. My question deals with how we get organizations to
use our NSP funds. Our Con Plan states that we will have an informational meeting, and then hand out
applications. We get the applications, review them and then go to City Council for a final decision on allocation.
Since time is so short, can we deviate from this process or do we still have to solicit applications?

Your normal process does not fit the timing requirements (states are having the same problem). You’ll need to
identify target areas with the greatest need (abandoned, foreclosed, subprime) and develop an approach to
acquire and rehab or demolish the structures, or redevelop them. The NSP website has some information (under
the link Foreclosure Recovery Strategies) on what other places have tried. I am also attaching some brief
guidance on how to approach the problem. I hope this helps. Check our site regularly as we keep adding
information and suggestions.


I thought I heard reference to datasets HUD provided on the website that states can use to help determine areas
of greatest need. I can't find it on the website - can you direct me, or if it's not there, will it be there and when?

Here is the site with the data, in case you have not found it yet;

http://www.huduser.org/publications/commdevl/nsp.html

Will additional guidance be provided to the States?
Can CDBG funds be used to pay for eligible pre-award NSP costs until the NSP is approved and then the NSP
funds can be used to reimburse the CDBG line of credit?

Can grantees use their own approved Housing Counseling agencies to assist homebuyers?

Do you think that you can help me get an answer to this? This might be a great way to work toward affordable
homeownership for households below 50%.

If a local grantee is working with a local non-profit to create owner-occupied housing utilizing NSP funds:

Would a lease/purchase option operated by the non-profit/CHDO be considered an eligible form financing
mechanism for homeownership? If so, how would the non-profit/grantee hold or account for the monthly
payments to comply with NSP income requirements?

Would the federal government/HUD be willing to (or do they have the authority to) authorize a mandated
minimum discount of 15% on any foreclosures held by the federal government (HUD, VA, etc) if the units are
being purchased by an NSP Grantee?

If the HUD can obtain federal approval for this measure, the acquisition of foreclosed units with NSP funds could
be greatly sped up in compliance with the discount requirement. Likewise, if the federal government to the lead
in doing this, other institutions holding eligible foreclosed properties might be more inclined to take a similar
step.


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HUD HQ is trying to get more information out all the time; keep checking our website. It’s not clear at this time
whether states will have special training.

Grantees can charge admin costs as pre-award costs, or can charge these to the regular CDBG program if
desired.

Yes, they can use your own approved counseling agencies.

Lease-purchase is fine; revenues (net of actual expenses) would be program income. It might be possible to
capitalize a reserve fund that could be escrowed as a way to keep some funding available for emergencies,
under the “financing mechanisms” part of the Notice.

FHA is anxious to support the NSP program and will be making properties available at a discount, as they
already do. HUD and several national organizations (LISC, Enterprise) are establishing vehicles for bulk transfers
of properties to speed up the process and lower costs.


When does HUD plan to post the contact information for NSP grantees so that interested parties can research
and determine opportunities to participate in the required public comment periods?

The website we have used for CDBG contacts is not operating properly at the moment. I have requested
information from the contractor who manages it. That site is: http://www.comcon.org/programs/contact_cdbg.html

Hopefully it will be up soon. The site lists all CDBG grantees. The Neighborhood Stabilization grantees are a
subset of that group, including all 50 states, plus about 250 entitlement cities and urban counties. The attached
regulations list these communities at the end. Thus, you should be able to look up specific communities of
interest as soon as the comcon website gets going again.

In the meantime, the functioning site below lists all HUD offices, so that you may be able to track down grantee
information in the event that the other site remains a problem.

http://www.hud.gov/local/index.cfm
This site is now functioning. It has the names and addresses of all CDBG grantees, by state. The NSP grantees
are a subset of that universe. I hope this enables you to get the information you need.


CDBG allows acquisition for “any public purpose” (except those prohibited at 570.207).
If NSP funds are used to purchase a non-blighted foreclosed property in a middle-income area for a public
purpose other than middle income housing, can that home be demolished with local funding (or CDBG if low-
income area)?

Yes, though CDBG requires consideration of the “full range of direct effects of the assisted activity” for area
benefit activities in LM areas, and thus instead might require a slum and blight national objective. If so, the
activity must meet a national objective for the re-use as well.



The City of Moss Point Community Development Department is interested in applying for any of the
Neighborhood Stabilization Program Grants. Our office would like to know does a grantee have to attend any or
all specified scheduled training before making application or before receiving funding for a particular grant
program if an award is granted. Also, our office would like to receive additional information on all programs.

To apply for Neighborhood Stabilization Program funds, you will have to work with the State of Mississippi.

Our Field Office in Jackson can put you in touch with the correct staff at the State. You may contact:

Linda Tynes, CPD Director

                                                                                                      Page 22 of 99
HUD Jackson Field Office
(601) 608-1790


Do you have a list of anticipated grantees for the NSP funding for Chicago and the state of Illinois? I would like to
contact agencies that may be applying to give some input for their applications.
Any assistance you can provide me would be greatly appreciated. Many thanks to HUD for this critical program.

We do not have that information in HUD Headquarters, if it even exists yet. However, I am sending this reply to
Alice Hamilton, Program Manager, and Kimberly Danna, CPD Representative, in the Chicago Regional Office.
They can provide better guidance than we can at this point.



Could you please advise if the new funding to purchase and renovate foreclosed homes, making them available
for low-income tenants is a grant that is open to nonprofit community organizations specializing in low-income
and affordable housing? The announcement mentions that grantees would include state and local governments,
but didn’t specify whether it was also open to other community organizations. Could you please advise?

The grants are available only to states and cities, about 300 total. The list is at the end of the attached Notice
describing the program. If your community is not a direct grantee, it would apply to receive funds through the
state or the state could administer it directly. In either event, the city or state will make the decisions about
whether to operate the program itself, contract it out, or some combination. Therefore, you should make contact
with the city or state with funds for your area and inquire about their plans. Good luck.



Washtenaw County has a ten (10) member Urban County that receives an annual allocation of CDBG funds.
Washtenaw County is receiving an allocation of NSP funding for approximately $3.0 million. In our analysis of
Neighborhood Stabilization Program Data, there are non-member jurisdictions highlighted as having a high need
for NSP assistance. Are we required to only target the funding in the Urban County jurisdictions with a high need
or is the funding open to all jurisdictions that have a high need?

Yes, you can go anywhere in the county that has a high need. For some jurisdictions, you already have
cooperation agreements. Anywhere else, you will need to develop one.


In our Action Plan (due December 1st) should we be concerned about including potential allocations from the
State of Ohio? I appears that the City may be in serious contention to receive additional dollars. Obviously this
would cause an increase to activities such as aiding the 50% AMI population. Thank you

It is the state’s responsibility to worry about additional funds at this point. You will not have to apply for those. Of
course, they will need some info and you will want to ensure some coordination. It might be logical to think of six
target areas, for example, four of which you can manage on your own and the other two of which you will attack if
added dollars come in. This type of modular approach lends itself better to increases of scale than, say,
designing a financing program that can only work with more funding.



How do we find out the procedures for entering into an agreement with the State of Florida to administer a portion
of our allocation?

Please allow us to research this a little more and get back to you next week. Here is what the Notice says:




                                                                                                         Page 23 of 99
There will be some financial reprogramming that HUD has to do. It is likely that most of the procedures will be
specified by the state. If you have not contacted their staff yet, you should initiate that conversation as soon as
possible.

You have listed the CoC's but the State and city, Jackson, received the grants. How do we find the contact
person for the State when we are a CoC? How do we apply as an Agency or CoC?

Each state (and city) is developing its own application guidelines. Here is the information from HUD’s Local
Contact website:
http://www.comcon.org/programs/contact_cdbg.html


Can a participating city that is a member of Urban County, request NSP funds from both the County and the
State, as long as the funds received from the State and the County are not used on the same project/activity?

YES

Questions:
1. The grantee has 18 months to obligate and four years to expend funds. For purposes of completing projected
start and end dates, 1) does the grantee use the HUD sign-off date or State sign-off date for start date; and 2) for
the projected end date, the 18 months or 4 years?

The 18 months will start when the grant is awarded by HUD. The project may go as long as five years. The four
years is the time at which the initial allocation must be expended. If there is program income, it could extend
beyond that.

2. Will approval have to go through the Congressional release process, and will the grant agreement be signed
locally or at the HQ level?

We are still working all that out. Probably will go through Congressional, not sure about the rest of the process.

3.In meeting the 25% benefit to 50% AMI, must these funds be used to "house" low-income families? For
example, can funds be used in a census tract designated less than 50%to demolish abandoned blighted
structures which would provide benefit in the form of safety, crime reduction, and urban beautification to adjacent
property owners?

No, the 25% must be some form of housing for people under 50% of AMI.


I didn't see Muskegon County listed under the state allocations. Is Muskegon County included in this? And if so,
who is and what is the contact information for our regional rep who we can contact for more information?

Thank you for your question. It is true Muskegon County, MI did not receive a direct NSP grant. However,
Muskegon County may contact the State of Michigan to request NSP funding.



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Part A of the Substantial Amendment states that you need to provide summary need data identifying the
geographic area of greatest need in the grantee's jurisdiction, what data specifically are they looking for?
Demographics what exactly do they mean by summary need data?
Also, they state that HUD has developed a foreclosure and abandonment risk score to assist in targeting areas of
greatest need. Are we only allowed to spend our money within these areas or can we target the areas we see as
highest need? Is there somewhere else where this data is mapped for you? I don't have mapping capabilities
and can't read this information.

I regret that the data we have is not mapped. It sounds like you have tried to work with it, so let me offer some
suggestions. I think that if you can get the spreadsheet to sort your city’s Census Tracts according to highest
needs, that should give you a pretty good idea of the areas. This uses the CA Tract file under HUD Provided
Local Level Data (at http://www.huduser.org/publications/commdevl/nsp_foreclosure_data.html )

The columns that you might want to sort by include:

H: Est. number of foreclosures
J: Rate of foreclosures (%)
M: 90 day vacancy rate
P: High cost loan rate

Since it’s at the CT level, it should be a manageable number that have greatest need in each of these factors,
and hopefully there will be a fair amount of similarity in the rankings. Then you can rough out an area of greatest
need by hand. When the Notice says Summary Data, it means that it should be good enough to get the general
outline of the area, not necessarily down to the block level.

If these areas do not seem to make sense as the highest need areas, you may certainly use local data as well.
The County Recorder should have information on foreclosures, since these are filed. The local Mortgage Bankers
Association might have other data on subprime or defaulted loans. All of this can also be supplemented with
visual surveys of foreclosed, vacant, or abandoned houses.

You do need to spend most if not all of your NSP grant in these areas, unless you provide a justification. Some
areas may have so many vacant houses that your grant cannot make a dent, for example. If you still feel
frustrated, please do contact the HUD Field Office in Los Angeles.


To determine the eligible area, should the census tract or block group data be used? Further explanation: The
foreclosure info downloaded from the site lists eligible block groups elsewhere, references are made to census
tract. If say two block groups in a tract are eligible is the entire tract or can abandoned or foreclosed property be
purchased only in the eligible block groups?

There is not a hard and fast rule as in low and moderate income areas in the CDBG program. The areas of
greatest need may be contiguous, or there may be some gaps. You can designate a workable area based on
local conditions. The Notice allows grantees to consider other needs categories. In addition, local data on
foreclosures might be more current or more detailed. The data HUD provided was to get you started. You should
designate areas for the large majority of your activity, but may acquire a little outside the boundaries.


NSP QUES - Can Urban Counties use NSP in entitlements without joint requests?

Thank you for your question. First, joint requests are only required for entitlement communities that received
direct NSP allocations and chose to administer their allocations together. Additional guidance is being developed
on this topic. Second, if Wayne County would like to use its NSP funds in areas where the jurisdiction is an NSP
grantee or not, HUD would not object so long as the activities comply with the NSP Federal Register Notice.
Please note that when the allocations were calculated, those jurisdictions that did not meet the $2 million
minimum threshold, the funds they would have received were included in the State program's allocation. Lastly,
HUD will not object to any jurisdiction in the State that decides to request NSP funds from the state. Please keep
this in mind as you decide how best to allocate your NSP funds.

                                                                                                       Page 25 of 99
Will Tribes be allowed to apply for NSP funds or must they wait and apply from the state as sub-grantees?

Also, NSP application materials discuss a required amendment of CDBG Action Plans. If our Tribe does not
have a CDBG at this time, and therefore no Action Plan, how should that be addressed in a NSP application?

If Tribes are expected to apply to the States for NSP funds, when would they be able to do so? We are trying to
establish a timeline for activities.

The legislation directs HUD to make grants to “states and units of general local government”. The attached
Notice, in section II F, provides for states to make grants to Indian tribes. Therefore, you should speak to the
program administrators at the State of Wisconsin who are designing the program. Each state is approaching it
somewhat differently.

I have had some questions on NSP from a woman named Betty Kalscheur (betty.kalscheur@wisconsin.gov )
who might be able to get you to the right place.


The HUD data posted on HUDUSER.ORG provides information for only 5 census tracts and 16 block groups
within our City. Where can we find the data (i.e., risk scores, etc.) for the rest of the census tracts and block
groups in Moreno Valley?

You might want to check the following site which maps the town for you. If you still experience problems, let us
know.
http://www.policymap.com/map

I'm an individual looking to acquire funds to provide housing for low income and homeless. How to I apply for the
allocated funding? Thank you for your assistance.

The neighborhood Stabilization Program makes grants to states, cities, and some large counties. You would need
to get in touch with your local govermentto learn how their program will work. Good luck.

We have gotten this question in different forms, and I am unsure. Entitlement cities can get additional funding from
the states. Since cities already having cooperation agreements must remain part of an urban county, does that
prevent them from getting state funds also? If so, would they have to work through the county for more funding
from the state?
A: Any city or town that receives funds from a county NSP grantee as a participating jurisdiction in a
county's program may also receive funds from the state. It is up to a state as part of their program design to
decide whether they wish to fund a city directly or to channel funding through the county for use in the city or
town. Nothing prohibits a local government from combining NSP funds from more than one grantee (e.g. from a
city's or county's direct allocation and from a state) in the same project, if both funding sources allow it under their
program designs. Grantees should consider the administrative considerations of mixing NSP funding from
multiple sources; a state may impose different procurement, administrative or financial requirements for their
funds than an entitlement program participant uses in their own program.

An Urban County has four cooperating cities which participate in its CDBG program. Several NSP-related
questions arise.
1. Can the County fund only in the unincorporated part of the County?

The NSP funds must be targeted to areas of greatest need. If those are all in the unincorporated part of the
county, then it can fund only in those areas.

2. Can the County fund projects in cities that are not its urban county partners?

Yes, subject to the “greatest need” requirement and with an agreement between the county and the non-partner
cities. The county must also document compliance with section 570.309 of the CDBG regulations. This section
requires urban counties to determine that such an activity is necessary to further the purposes of the HCD Act and

                                                                                                        Page 26 of 99
that reasonable benefits will accrue to residents within the jurisdiction of the grantee.

3. Can any city within the urban county (cooperating or not) apply to the state and receive NSP state funding?

Yes, as long as the state’s rules allow it, any city could apply, as could the urban county itself.


How can staff costs be obligated for administration and planning? Can NSP administrative funds be used for Land
Bank administration?

HUD will consider the entire 10% allocation for administration to be obligated, even though it may not be
expended, by the 18th month. Unless the grantee is contracting some of these activities out, there is no way to
document this fact and it is assumed that they are obligated.

NSP administrative funds could be used for Land Bank administration. Direct project administrative costs
necessary to operate the Land Bank Program are also eligible in the Land Bank project budget as activity delivery
costs.


How can HELP, Inc, obtain the benefits of NSP for our Organization.

The City of Chicago will administer the NSP grant. I am unsure which City of Chicago department is handling this,
so I am sending a copy of this note to Kimberly Danna. Kimberly is the HUD representative to the city and may be
able to provide more specific advice on whom to contact. Her phone number is (312) 353-6236 x 2721. I am
including your contact information for her reference.


I have been asked to find out definitively if the City of Florida City in Miami-Dade County is an entitlement
community under this program. According to the published list on your website it is not. Could you please verify
this?

You are correct that the City of Florida City does not have its own allocation of NSP funds. However, it could work
with Miami-Dade and/or apply directly to the State of Florida (depending on how the state decides to administer its
$91M in NSP funds). I hope that this information answers your question.


Is Lee County allowed latitude to work outside of their identified areas?

While HUD expects NSP grantees to spend the large majority of their funds in areas of greatest needs, there is
some latitude. If the County can provide a reasonable justification for the activity, it could undertake limited
projects outside the area.

For example, a blighted structure outside the target area may present a substantial negative influence on
surrounding homes, threatening to create many foreclosures or abandonments where only a few now exist. Or a
grantee may wish to de-concentrate affordable housing by redeveloping vacant land outside the target area and
constructing affordable rental housing (with 100% LMMI occupants) or even for-sale housing units.


What is the recommended methodology to determine the criterion of Areas of Greatest Need?
It is up to the state to make this determination. HUD provided its methodology for allocating NSP funds (see
http://www.huduser.org/publications/commdevl/nsp.html ), but there is no requirement that states emulate HUD’s
distribution methodology. The only requirement is that state’s justify the allocation process that they choose.

Are local governments required to use the HUD method in determining greatest need and the same sources of
data sources HUD used to determine need?
No


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It could be that not all foreclosures are in a specific area, or the City may want to help the entire City regardless of
the location. Can the City boundary be the designated area?
Yes, but the grantee needs to justify why the entire city was designated an area of greatest need.


A question has arisen here about the census tract data HUD issued showing eligible/ineligible areas for NSP
funding. Some people are interpreting this data that all activities undertaken must be in the listed census tracts.
Others are interpreting it that these are the census tracks under the "area wide benefit" criteria of CDBG, and that
you can still do direct benefit outside of these census tracts. Which is correct? Can we operate the program
anywhere we can show substantial need that HUD accepts as long as everyone served earns less than 120% of
median income (and 25% earn less than 50%), or do we have to restrict everything to the census tracts listed by
HUD?
Your interpretation is correct. The activities you undertake must all benefit income eligible individuals regardless
of where the activity is located. The census tract data we provided was intended to show where the highest
concentration of income eligible individuals are located.




Our parishes are not in the pink area of the map, so therefore it appears we do not qualify to apply for this grants.
However the parishes of St. Mary and Vermilion do border Iberia Parish, which is in the pink area of the map. Can
we partner with an agency from Iberia Parish to apply for this grant?

The NSP program requires that the funds be spent in areas of greatest need. Based on your statement about the
maps, I assume that you are not in such an area. Therefore, the funds would not be able to be spent there
regardless of which parish applies. Sorry.

Follow up question:
Actually my question is can we partner with another entity, such as one in Iberia Parish to help or work with them
in Iberia Parish. I understand no monies could be spent in St. Mary Parish, but could we contract with an agency
in Iberia Parish to handle this grant project there?

Response:
Yes



A 10/31 posting asks whether, if you leverage NSP funds with other private funds to create rental housing, if all of
the units created need to be affordable. HUD's answer says yes, based on its literal interpretation of the
legislative mandate that all NSP funds benefit LMMI persons, "meaning that any mixing of funds might violate the
longstanding CDBG rule that projects assisted in whole or in part with these funds must meet all requirements."
However, the CDBG regulations at 24 CFR 570.208(a)(3) defining the L/M Benefit test in the acquisition or
rehabilitation of residential property, conversion of nonresidential structures, and new housing construction, in the
case of multifamily property, considers the L/M Benefit test to be met, in the case of a structure that contains two
dwelling units, if at least one unit is occupied by an L/M household, and if the structure contains more than two
dwelling units, considers the L/M Benefit test to be met if at least 51% of the units are occupied by L/M
households. Further, less than 51% of the units may be L/M if the activity is new construction of a multifamily
non-elderly rental housing project; at least 20% of the units are L/M and the proportion of the total cost of
developing the project to be borne by CDBG funds is no greater than the proportion of units in the project that will
be occupied by L/M households. Would not the same rationale for LMMI benefit apply to the use of NSP funds? If
so, and 51% of the units in a multifamily building are designated as affordable at or below 120% AMI and a
subset of those are d3esignated to be affordable at or below 50% AMI, how would HUD determine how much of
the NSP assistance may be counted toward the recipient's requirement to use 25% of its NSP funds to benefit
households at or below 50% AMI?

It seems likely that it will not exactly follow the CDBG 51% route, since HERA requires 100% benefit to LMMI.
However, we feel we are making some progress in getting our attorneys to consider a proportional allowance; e.g.

                                                                                                        Page 28 of 99
if 70% of the units are LMMI, then up to 70% of the costs could be paid by NSP. This would be supportable to
Congress while allowing some flexibility, especially since going to 120% AMI already gives you access to about
60% of the people in a market area. Keep an eye on our webpage.

PLEASE NOTE THAT AS OF NOV. 19, 2008, THIS TOPIC WAS REVISED TO ALLOW PROPORTIONAL USE
OF NSP FUNDS. SEE NSP WEBSITE.



Eligible Use Scenarios

I am a first time home buyer and I have been looking for foreclosure homes in Woodbridge Va with my real estate
agent. I would like to know if I am eligible to receive a grant based off of your qualifications. I plan on buying a
foreclosed home this year. I make less than 45,000 a year.

Thank you for your question. Please be advised that NSP grants are only distributed to designated NSP
grantees, which are comprised of state agencies and local governments. Each grantee will have to determine
how best to allocate its NSP grant so long as it complies with the eligible uses described in Title III of the Housing
and Economic Recovery Act of 2008. When NSP grantees submit their action plan amendment to receive their
NSP allocation, they will indicate how they plan to manage the funds. In some cases, NSP grantees may choose
to manage their grants collaboratively with other NSP grantees or contract out to a private organization. HUD will
post contact information for each NSP grantee as soon as the information becomes available.


Can the NSP grant funds be used for a loan to a for-profit business to create full-time permanent jobs which will
benefit persons of low/moderate/middle income households?
Thank you for your question. The NSP funds are designated for various types of housing activities. The eligible
uses are listed on the NSP website. Your challenge is to demonstrate how funding a for-profit business meets
one of the eligible uses.


Can NSP funds be used to acquire and demolish a foreclosed/abandoned and blighted residential structure in a
middle-income eligible area, then resell the cleared property at "current fair market value" (per 24 CFR
570.505(b)) rather than redeveloping the property?

And if so, are the proceeds of the fair market disposition considered to be program income or a grant
reimbursement?

1. Yes
2. Program income

I understand the eligible activities for use of the NSP funds. It seems like the purchase, rehab and reselling as
affordable housing are all linked together. Would it however, be possible to direct eligible buyers to the foreclosed
homes, help them with the purchase and rehab without actually purchasing the property ourselves?

Yes. There is a lot of flexibility in designing programs. See the link called Foreclosure Recovery Strategies on our
website and keep checking it. We are using the site as the main repository of information and update it frequently.
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/


We have received several inquiries…..whether NSP funds can be used for demolition of derelict abandoned
properties, which have been abandoned for years…...unknown whether they are foreclosures or not. Is this an
eligible use of the funds?

Yes, this would be an eligible use, provided the structures meet a local definition of “blighted”.



                                                                                                       Page 29 of 99
We are the HOPWA entitlement grantee for the MSA. Can NSP funds be used to assist with the development of
a new non-profit facility-based housing development? The beneficiaries would be HOPWA eligible. This particular
organization is currently in the early development stage to build a 40 unit independent-living apartment building.

Is there some linkage between the housing development and foreclosed/abandoned property? It’s not clear from
your note. For example, we have told grantees that they could acquire a foreclosed multifamily structure and
redevelop it as a transitional housing facility. Your description makes it sound like new construction and does not
mention an NSP connection. There should be some linkage to the NSP-eligible uses of funds.


I saw on the HUD website, New York was modeled for its foreclosure prevention programs. Can NSP funds be
utilized for pre-foreclosure activities?

We run a housing rehabilitation program that many times has to relocate the family for months at a time while the
rehab is being completed. Could we utilize NSP funds to purchase 2 properties and use them to house the
families that are going though our Housing Rehabilitation Program? Tenants would be required to pay utilities
and all participants are low and moderate income.

It was also suggested that NSP funds could be used to purchase rentals that were not in foreclosure but wanted
to voluntary sell. Is this true?

NSP funds cannot be used for pre-foreclosure activities. There is a separate allocation for counseling that is
administered by the Neighborhood Reinvestment Corporation (NeighborWorks) to address that side of the
problem. See http://www.nw.org/network/home.asp

NSP funds must be used to acquire foreclosed or abandoned properties, and may be used to acquire properties
“in lieu of foreclosure”. If the voluntary sales you mention are houses for which foreclosure proceedings have
begun, it would be allowable to purchase them. Otherwise, it is not.

Regarding the purchase and use as a temporary resource for housing rehab, the homes would have to be
foreclosed or abandoned, as noted above. Their use as temporary housing would probably be acceptable under
the land banking category or possibly as redevelopment. It’s on the margin, and the policy is just developing, so
this answer is somewhat tentative. Keep checking our website for policy updates and clarification, and stay in
touch with the HUD Phoenix office.


Can funds be used for aesthetic improvements to homes in the "targeted foreclosure" area. For instance, we
work with a nonprofit that utilizes volunteer labor to paint and landscape homes. Can NSP funds be used to
purchase the material for the nonprofits to do volunteer outreach in the foreclosure area? The homes they will be
working on are not in foreclosure.

While the activity you describe makes a lot of sense, it does not seem allowable under NSP. The NSP list
includes rehab, but specifies that it must bring properties up to local codes. None of the other categories appears
to offer the scope that would allow this. However, you could use CDBG or other sources of funds to supplement
the program in this way.


We have some grantees that for some time already have held property they acquired through tax forfeiture on
abandoned homes. Can these grantees use NSP $ to redevelop and sell these properties, or must the properties
by acquired through the NSP?

They can use these properties. The only issue is that the tax-foreclosed properties cannot be “purchased” from
the grantee with NSP $$ to the extent that the public entity is reimbursed for its outstanding liabilities. This is an
emerging policy to prevent units of government from “enriching” themselves via NSP.



                                                                                                         Page 30 of 99
From your response, I am interpreting that it (NSP grant) can be used for new construction. As a result,

            •   Can it be used for down payment assistance and/or closing costs, and
            •   Is a CDBO required

Yes to question 1, both DP and closing costs. No, you do not need a CBDO for new construction as in the regular
CD program.


1. Can NSP funds be spent for eligible activities in two or more non-contiguous areas?
2. Can the City serve as a banker and lend monies and service loans for the sale of properties? Must a lender be
involved in this process?

The law requires that grantees target the areas of greatest need. These need not be contiguous.

Cities have a lot of flexibility in designing financing programs. There is no requirement that banks be involved. In
designing your program, keep in mind that, after five years, any program income must be returned to HUD. That
may affect your financing, but HUD does not mandate any particular structure.


Can NSP funds be used to provide rehabilitation loans or grants to current homeowners who are below 50%
AMI? Page 32 of the regulations alludes to a correlated CDBG eligible activity under 570.202.

The only reference I saw to 570.202 was in the list of eligible activities as correlated to CDBG regs. However, this
section appears just below that and appears to prohibit what you requested. In general, HUD is interpreting the
legislation to mean that homes that are rehabilitated must be purchased with NSP funds, and these must be
abandoned or foreclosed upon. Therefore, occupied structures would not qualify, whether or not they were for
foreclosure prevention.




Can grantees assist with abandoned or foreclosed properties being handled by realtors?

What is the definition off a property being considered vacant?

YES
Either an unoccupied house or a piece of land with no structure on it (under redevelopment).

At the conference on Friday, I commented to Paul that everyone is assuming that they could use this money to
pay for down payment and closing costs on an unlimited basis. I pointed out to Paul that although the CDBG
regs don’t address it, the CD Guide does. It states that you could only pay for up to 50 percent of those costs.
Paul said they must have overlooked addressing this in the NSP regs.

Yes, but you can subsidize principal and interest to get where you need to be price-wise.


Projects are to be targeted in areas of highest need. Can a grantee select an individual project out of that area of
highest need and fund it? For example, a large multi family housing project is in foreclosure and sitting idle. The
                                                                                                      Page 31 of 99
County/State/City would like to jointly fund the acquisition, demo and reconstruction of that project to provide
permanent supportive housing. The specific location is an obvious pocket of highest need, but not specifically in
a target area of highest need per the program factors. Can this be done?

Good questions. The legislation says that they have to give priority emphasis and consideration to areas of
greatest need, but not exclusive emphasis. Moreover, there can be multiple areas of greatest need, which may
not necessarily be adjacent. Further, a really huge area may not lend itself to measurable results in 5 years.
Therefore, if the grantee can make a reasonable case for doing something like this, and it sounds like they can,
then it’s okay.


If a community wishes to purchase a foreclosed upon mixed-use mixed use building (apartments upstairs,
commercial on the first floor) could NSP funds be used for the entire acquisition and/or rehab cost, or only for the
residential portion of the property?

If the building is vacant, you could probably do it as redevelopment. If not, might be outside the rules. Let us
know and we will seek a quick policy decision.

For the community project in question, the building is vacant. If we can get a policy decision on that it would be
great.

If there is a prohibition against occupied mixed use let me know that too.

Just talked to my boss and he thinks we need to ask others on mixed use. He did feel that, if the commercial use
were only incidental (maybe < 10%) it would be okay. But both of us are more used to seeing a higher
percentage in mixed use, and also would like to promote its use. If not doable under NSP exclusively, we will also
consider combining with other sources of funds. It will probably take a few days to work through this.

PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE FURTHER CLARIFIED.


Can we use NSP dollars to fund Public Use projects such as sidewalks, park restrooms, transit shelters, etc.?

These would only be allowed in conjunction with a Redevelopment Activity and having a reasonable supporting
relationship to it. In other words, if you acquire buildings and land to create a vacant block, you could do these
types of projects on the site, but not in the whole neighborhood. Hope this helps.


From: Kislin, Louis
Sent: Wednesday, October 15, 2008 2:01 PM
To: NSP Questions
Subject: RE: NSP questions

Hi John,
Just got out of a meeting with my Field Office Director who asked me if we could use NSP funds to acquire a
multi family property in assignment to HUD. I didn’t think so, but I told her I would ask

Has to have gone through foreclosure unless it is vacant, in which case you could acquire it under
Redevelopment. I think that Redevelopment is going to be the Wild Card category…


During the Continuum of Care/NSP Targeting Requirements session at the Ohio NSP training, Mr. Johnson
suggested purchasing homes and donating them to groups that assist the disabled. The City of Sterling Heights
is interested in developing a NSP program to provide homes to eligible disabled veterans however, we are
concerned that the veteran would be responsible for paying taxes on the value of the donated home. Could we
sell the home for a nominal amount to avoid having a tax issue?

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YES

Is there a minimum sales prices set by the NSP program?

NO; use sound underwriting procedures and consider long term affordability. Making it very inexpensive may be
the only way to reach that goal.

Will additional information be posted regarding effective interaction between NSP funds and the purchase of HUD
homes? The NSP site currently just directs you to basic info. on the purchase of HUD homes.

Hopefully soon.

I understand that we have 18 mo. to obligate and 4 years to expend. If the city starts an activity to purchase,
rehab and sell homes to eligible purchasers do we have to identify each property in the 18 mo. or are we given
the four year period?

YES, you must identify and have under contract in 18 months.

I am concerned that 18 mo. will not be enough time to identify the right properties to use in our program.

Legitimate concern: think about that when selecting target areas. Consider bulk purchases, if possible. Get
started right away to avoid loss of funds. The 18 month time limits is in the legislation, so that is what everyone
must follow. HUD cannot waive laws.

Regarding the NSP Eligible use "redevelop demolished or vacant properties", does this include commercial
properties?

YES, if vacant.


Thanks for the clarification. When you say “participating jurisdictions, however, must stay with the UC”, please
explain.

That is, those cities that have agreed to be included in the regular urban county program through cooperation
agreements, according to the CDBG regs at 570.307.


It is understood that foreclosure prevention activities, such as refinancing mortgages or paying back taxes is
ineligible, but can NSP Administration funds be used as part of a Housing Counseling strategy to provide
foreclosure information workshops?

If NSP funding is used to purchase a foreclosed multifamily unit building, to be used as rental property to provide
affordable housing for families at 50% or below AMI, is the monthly rental income received from that property
considered NSP Program Income? Or is the rental income considered as an operating fund if it does not exceed
the amount needed to maintain and operate the rental units?

1. NSP funds can only be used for housing counseling when provided to prospective tenants or purchasers of
NSP-redeveloped properties. Other sources of housing counseling can supplement your program, including
CDBG. In addition, NeighborWorks has received a significant amount through the legislation for housing
counseling. Its website is: http://www.nw.org/network/home.asp

2. Revenue from NSP properties becomes Program Income only after paying for normal operating expenses; in
effect, HUD considers Program Income to be equivalent to Net Operating Income, rather than Gross Income.
Normal operating expenses would include such costs as insurance, maintenance, common area utilities,
replacement reserves, and reasonable management fees.



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If a grantee or subrecipient purchases a vacant foreclosed home using NSP funds and then demolishes it using
NSP funds, can the land later be sold for a profit?

As described in Section II N 1. of the attached NSP Notice, such sale proceeds would be considered Program
Income. Until July 30, 2013, the city may retain these for other eligible NSP activities. A subrecipient that
receives such proceeds may retain them, if the city allows, but the city must still report it as Program Income.
After 2013, such income must be returned to HUD for activities B and E. Note that for activities A, C, and D, the
five year limit on retaining Program Income does not apply (i.e. the city may retain it after 2013 also).

Thanks for your quick response--my question was more about whether the grantee or subrecipient could sell the
cleared land for more than what it paid (for both the purchase and the demo). My concern was that since we
cannot sell a home to an owner-occupant for more than what we paid to purchase and rehab it, did the same
hold for cleared land?

OK. I see no problem with that. The Notice concerns itself more with making sure that grantees are selling
homes for market value or less (a moving target)or avoiding undue enrichment for profit-motivated developers.
Sale proceeds like this would just be program income.


We are looking into opening a 1/2 way house or transitional housing in dodge cone. But we want it to be
Christian based. Would we qualify for this funding as Christian based?

It is possible under certain circumstances to use Neighborhood Stabilization Program funds for the activity you
describe. The following section of the Community Development program regulations, which govern the NSP
program, describes those conditions. I have highlighted what seem like the most relevant sections.

In brief, a religious organization can operate a program as long as the program does not require membership in
that religion or the organization does not use the funds for religious activities. Thus, for example, you could not
restrict use of the halfway house to members of a certain religion. You can read this over and decide whether it
supports your concept. In any event, to receive funding, you would have to work with a government agency that
is eligible to receive a grant; the NSP program awards funds only to state and local governments. In Nebraska,
the contact name that is on our website is below. I hope that this is accurate.


Can an NSP grantee acquire properties with NSP and, then, donate the properties to a nonprofit organization for
a rehab or redevelopment project without performing underwriting or analysis of project costs? Can they finance
the rehab or redevelopment costs without performing underwriting or a cost analysis of some sort?

I am concerned about the uniform administrative requirements that grantees must determine that no more
Federal funds are invested in a project than is necessary and reasonable.

For example: The NSP grantee acquires 5 single family properties using NSP funds. The NSP grantee wants to
donate the 5 single family homes to a nonprofit with a written agreement that the nonprofit will rehab and resell
the properties.

1. Does the NSP grantee have to perform a cost analysis to determine that it is appropriate to donate the
   property? Or, must they perform underwriting or some kind of cost reasonableness analysis to determine
   that the nonprofit can’t afford to purchase the properties from the NSP grantee for market price?
2. If the NSP grantee also wants to subsidize the rehab or redevelopment of those 5 properties, must a cost
   reasonableness analysis/underwriting analysis be performed – (review sources and uses and determine if
   there is a funding gap, etc)?

Because of the 18 month deadline, some grantees have expressed a concern that subrecipients will not have
time to seek private financing for projects, particularly since they must first identify and obtain site control of
vacant and foreclosed properties. So, the NSP funds may be used for the entire cost of the project, including
acquisition and project costs.


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As touched on in the note to Calvin Holmes, somebody has to underwrite these, but it’s probably going to be
closer to the ultimate buyer. As you correctly noted, there is cost reasonableness to consider. More importantly
in this program, there is going to be an affordability issue. That will vary from buyer to buyer, but they converge.
Here’s how I see it working:

Let’s say the grantee sets an affordability level that housing costs will not exceed 30% of household income. The
cost to acquire and rehab the house, at the mortgage rate they are working with, might result in payments of
40% of that specific household’s income. They would want to subsidize it enough to reach that family’s
affordability level. (Reducing the purchase price is the easiest way; soft seconds are another.) For another
family, since it’s income-dependent, it might be 45% or only 35%, so the level of write-down will vary. In this
fashion, though, unless they go below their affordability level, they should not be over-subsidizing it. There may
be circumstances for which they can justify added subsidy. Otherwise, cost reasonableness should be at about
the level they chose as “affordable”. Then the resale-recapture provisions kick in, based on the dollar value.

It’s likely, and probably sensible, that they would spend all their money up front, rehab and resell the units, then
keep the cycle going. Although it may not be as hard as they think to get some conventional financing, it might
feel safer to spend it than risk losing it. Jessie just told me that Congress seems to be reconsidering the rule that
they have to repay program income from Uses B and E in five years (little known fact: Uses A, C, and D already
don’t have to go back to HUD, though there is a type in the regs (N.2.). So maybe it’s good to get the money out
in ways that they can maintain a high level of PI. On the other hand, Use A, Financing Mechanisms, could be
established in such a way that the funds are obligated to soft seconds or other grant equivalents, without having
to be expended in 18 months.


1) Does acquisition of foreclosed homes have to take place in a LMMI census tract area? No, in the areas of
greatest need. If not, what is the purpose of HUD identifying these areas? NSP requires 100% of funds to
benefit LMMI. If you can do it all with income requirements, it does not matter. You may, however, want to do
some redevelopment, say a park on a vacant site that serves an area, then you would need to qualify the service
area.

2) Does the City have to take possession of the foreclosed home or can the foreclosed home be purchased by
an income eligible homebuyer and then receive rehab assistance with NSP funds?

For example: The City would develop a NSP program designed to encourage income eligible homebuyers to
purchase foreclosed homes in the City of Sterling Heights. City’s NSP funds would be used to rehab the
property. Affordability requirements would be based on the amount of NSP funds put into the property.

No, the city does not have to take possession if you consider it a Financing Mechanism, Eligible Use A.

I have the following questions as they relate to NSP-Eligible Uses (E) Redevelop demolished or vacant
properties:

1)    What is the definition of a vacant property?
Either land with no structures on it or a building with no occupants.

2)   Can NSP funds be used to acquire vacant land that has not been foreclosed upon?
Yes, under Eligible Use E.


3)   Can NSP funds be used to acquire a vacant site that has an existing building, demo that existing building
and get the site ready for new construction of affordable housing?
Yes, under E, as above.

4)   And does the site have to have been foreclosed upon?
No, only houses that are acquired, under Eligible Use B.



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We are considering a rent to own program, where the property is first rented to an income qualified family while
we work with them to save a down payment and get their credit improved. If something happens where it
becomes necessary to evict the tenant later, will we have to pay relocation benefits?

Under the URA, a person who is evicted for cause (see 49 CFR 24.206) is not eligible for relocation assistance.
The complicating factor here might be what is behind the question—do they anticipate evicting the tenant
because at some point in time the tenant may be unable to fulfill the purchase requirements or are they
anticipating that the tenant may become delinquent on the rent (which would clearly fit the eviction for cause
requirements)?

If a jurisdiction institutes a lease-purchase program, will URA apply to the tenant if he/she does not qualify to
purchase at the end of the lease term?

We can’t give a definitive answer to this question because we do not know how the NSP funds will be used in
the project and how the project and its requirements will be structured.

However, initial thoughts would be (assuming this is a new tenant--who was not in the property at the time of the
Initiation of Negotiations (ION) for acquisition, demolition, rehabilitation or conversion of a lower income unit for
an NSP-funded project—someone the URA would consider a “subsequent tenant”): if before the tenant agreed
to occupy the unit, they were provided with a Move in Notice (see 24 CFR 570.606(b)(2)(ii)(B)) that advised them
they were occupying an NSP-funded project for a lease-to-own program and that if they were unable to meet the
eligibility requirements to become an owner within the program’s time limit that they would not be eligible for
relocation assistance under either the URA and/or section 104(d) (see Appendix 29 of Handbook 1378 for a
sample Move in Notice) that neither the URA nor 104(d) relocation payments may be an issue. The key is that
the tenant know the possibility that they could be displaced for the project BEFORE they move in (so they could
choose not to move in if they did not want to take the chance and agree to the terms of the project).

This brings to mind the eviction for cause standards in the URA 49 CFR 24.206. The issue may become what
provisions relating to downpayment or other program eligibility requirements are stated in the lease and whether
failure to meet those terms by some specified point in time would be considered “material” and is the nature of
the breach “serious” or “repeated” and would be considered a basis for eviction under local law.

It is quite possible that a non-purchasing tenant may be made eligible for relocation assistance for failure to meet
the homeownership requirements at a later date if they were evicted or asked to leave for failure to meet the
requirements.

The City of Cape Coral is in a rather unique situation as to the fact that a large number of foreclosed homes
were built speculatively and are vacant requiring no work. Based on this, staff was contemplating creating a
down payment assistance program that would provide assistance to low/middle income households who are
purchasing foreclosed homes. The City has never utilized HUD funds for downpayment assistance. The
question I have is can we provide a person with 20% down if we required a small contribution on their part and
secured the assistance with a second mortgage. I was advised by a colleague that I could not do this that I had
to do a dollar for dollar match with the homeowner or another funding source. Is this accurate? Please advise.

Under the CDBG regulations, you may only pay half of a downpayment. However, you may also reduce the
purchase price, pay closing costs, offer low-interest financing, etc. to accomplish the goal of making the home
affordable. Your underwriting, matched up with your definition of affordability, should get you to an affordable
monthly payment amount. Then you can kind of back into the difference between that and current costs. Then
you have these options for filling that gap. Discounting the purchase price is probably the most direct. Does that
make sense?


Under NSP, can a city establish a stand alone direct homeownership assistance activity (down payment and
closing cost assistance) under eligible use (A) and/or (B)?

(A) Establish financing mechanisms to carry out all other NSP eligible uses, which includes the correlated CDBG
activity of direct homeownership assistance (down payment and closing cost assistance), to individuals to

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purchase homes that have been abandoned or foreclosed upon; or

(B) Purchase and rehab homes … that have been abandoned or foreclosed upon … which includes the
correlated CDBG activity of direct homeownership assistance.

YES, as long as they are focusing on abandoned and foreclosed. It seems like it makes most sense under A
(Financing Mechanisms), since that correlated eligible activity includes the Direct Homeownership Assistance
below under B. Note that the section on Program Income currently allows grantees to retain Program Income
beyond five years for A, but not for B. (Though I just heard that Congress is considering a change to scrap the
five year rule and allow retention as CDBG Program Income indefinitely.)


What is the maximum subsidy amount a homebuyer can receive from the City for Down Payment
Assistance/First Time Homebuyer funds? (Not counting Rehab money if required due to the condition of the
property). If the property requires additional REHAB money after closing for repairs, is that money separate from
the original subsidy given to the homebuyer with regard to a subsidy cap, if one exists?

As Homeownership Assistance, you can only pay 50% of the downpayment. However, there is no overall limit.
You may reduce the purchase price, make a soft second mortgage, or use other tools. However, your
underwriting process should ensure that the house is affordable to the purchaser (at the upper end) and should
not over-subsidize it (at the lower end). You must establish your own affordability definition (e.g. housing
payments do not exceed 30% of household income). Once you subsidize the house to around that level, you
should be in the ballpark. You can go below that but, to stretch your funds and avoid criticism, probably not too
much below.

However, there may some extreme circumstances (we heard one recently about injured veterans) that justify a
deeper subsidy. That’s your option but keep in mind that, if you are subsidizing extremely deeply, maybe this
family cannot handle ownership. See also the attached long-term affordability and resale-recapture provisions
from the HOME program; these are an acceptable minimum for NSP.


Oakland County plans to fund various targeted communities as subrecipient. If a subrecipient acquires, rehabs
and/or demolishes and redevelops and sells the foreclosed upon property to an eligible homebuyer, can the
subrecipient receive reasonable developer fees per property rather than charging direct project related
expenses. If so, what constitutes are reasonable developer fee?

Developer fees are limited to private individuals or entities that are not subrecipients; in most cases, these will be
for multifamily or mixed use projects. Costs such as you describe should be charged directly to the project with
relevant documentation. These “activity delivery costs” can be allocated to the Eligible Use/Activity, not to
General Administration which is limited to 10%.


Can a for-profit organization apply for and receive funds under the NSP Program to pursue an activity involving
new construction of housing

This is possible in the NSP program. The non-profit would have to be a subrecipient to the County (or state), not
a direct recipient (just making sure you knew).

The only Eligible Use that supports new construction of housing is E, Redevelopment. To use Redevelopment,
the property must be vacant (including vacant structures).

The property might start out as foreclosed homes acquired under Eligible Use B, then demolished under E.U. D,
Demolition. Or it could already be vacant. Then new housing can be constructed on the land. Note that housing
rehabilitation is not an eligible activity under Redevelopment.

In addition, all NSP activities must benefit Low, Moderate or Middle Income (LMMI) people in some way. If it’s
affordable to LMMI, you are fine. If only some of the units are affordable, HUD is not currently allowing that.

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However, we are actively considering a change to allow pro-rated infusions of NSP funds as long as the
percentage of affordable units is at least that percentage. Keep an eye on the NSP website for changes.

Thanks for this information. However, your response is a little confusing to us in that you referred to “non-profits”
would have to be a sub-recipient. I assume you meant to say “for-profit”.

The best way to re-state our question is: Can a “for-profit” entity apply directly to a County NSP jurisdiction for
funding, or must the “for-profit” entity partner with a “non-profit” entity in order to utilize NSP funding?

Sorry, we’re getting a little bleary here in the InBox. It can be for-profit or non-profit. Check the Program Income
section of the Notice though, since no profits are allowed, only a reasonable development fee. All excess
revenues are program income. This may affect your partner’s willingness to participate.


New construction is allowable. Does it have to be done on property that has had a building on the property
before?

No, the property may have been vacant already.

See page 58338 of attached Notice, left column about 2/3 of the way down. Note that this must be done in
conjunction with Activity E only.


Is the following an eligible use of NSP funds: environmental remediation of a vacant City-owned parcel as part
of redevelopment of that land for an affordable housing purpose? The vacant City-owned land has been in the
City's inventory for a number of years and was not purchased or cleared with NSP funds, nor is the land
associated with any sort of foreclosure action.

Yes, in CDBG this is considered a part of clearance or demolition, which would be allowed in NSP as Eligible
Use D.


The City of Grand Forks, North Dakota has many vacant lots bought with CDBG Flood $$$. The homes on
these properties were destroyed or demolished. These vacant lots are no longer in the 100 year floodplain
because they are now protected by a permanent dike system. Can the city construct single family and/or
multifamily housing using NSP funds on these lots?

YES, if they are in areas of greatest need.


Can a nonprofit entity receive NSP funds to develop permanent supportive housing on vacant lots that it already
owns?

YES, as redevelopment

Can a private developer use NSP funds to purchase a foreclosed property, rehabilitate it, sell it to a low, mod,
middle income households and at the same time provide that household with a loan to purchase the property?

YES

There is confusion about whether NSP funds can acquire “property” or only “homes and residential properties”.
Can the NSP funds be used to rehabilitate foreclosed properties that are not residential when those activities will
further neighborhood stabilization, such as a community grocery store?

Yes, under Eligible Use E, a grantee may acquire demolished or vacant properties (including vacant structures)
that are not residential for redevelopment. Redevelopment and demolition may include non-residential
structures. As noted in the question, these must generally be located in targeted areas of greatest need and
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support the activities in the area that are acquiring, repairing, and selling foreclosed or abandoned houses.
Eligible Uses A, B, and C are limited to homes and residential properties.


Can NSP funding be used to renovate vacant state- or federally-assisted public housing in NSP target areas?

There is no prohibition against this use of NSP funds, but HUD encourages grantees to seek funding from the
agency that owns the property as well.

Can clients eligible to participate in the Section 8 Homeownership program also participate in financing provided
through the NSP? For example:
1. Can a Section8 Homeownership client purchase a property that was acquired with NSP funding and made
available for sale by a subrecipient?

2. Can a Section 8 Homeownership client apply for NSP financing to acquire a home and then pay the mortgage
with the Section 8 Homeownership Voucher?

Yes, persons with downpayment assistance, participants in lease-purchase programs, and Sec. 8
homeownership voucher holders may use those mechanisms to purchase an NSP home, whether from a
subrecipient or directly from the unit of government. Additionally, prospective purchasers may receive financial
assistance from the NSP program, through such means as downpayment assistance, to purchase houses that
have been acquired with NSP funds. The grantee must ensure through its underwriting that such forms of dual
assistance do not overly subsidize the purchase, but they are allowed.


Midwest City would receive NSP funds through the state. In Re: Sec 2301(c)(3)(E) NSP-eligible use being
redevelop demolished or vacant properties, can the vacant property be a vacant public property/city fire station
that would be redeveloped as a neighborhood public facility. Facility is located in a low-mod census tract
needing a public facility for neighborhood activities.

Yes, if it is located in an area of greatest need. Simply locating it in an LMMI area is not sufficient in itself. In
addition, redevelopment activities should support the housing activities in the target area, not just share a
common location. For example, a major roadway that happens to be located in the area serves many more
people than those living in that neighborhood and thus does not meet a national objective. This activity, as
described and if located in an area of great need, appears to be eligible.


If the grantee or its subrecipient demolish blighted property in a low mod, or low/mod/middle-income area, can
they use the LMA/LMMA national objective? Or, must they undertake the demolition as a land bank activity in
order to qualify it under the LMA/LMMA national objective?

If the property being demolished is located in an area of greatest need, then it would qualify as LMMA (unless
the ultimate use is housing).

If we buy a property for 100,000 and put 25000 in rehab. Then we sell for 125000. The person who buys only
qualifies for 100000. If we leave 25000 in as a soft second with 0% interest until they sell, would that be
considered down payment assistance. In other words, this started as one strategy and turned into a second
strategy (purchase assistance)?

It’s not strictly downpayment assistance, but is a Financing Mechanism.. You are correct that this kind of morphs
from one activity into another (B - Acq/Rehab into A – Financing). But that’s okay. You can have multiple Eligible
Uses supporting a single unit or project. Just be sure to have some funds budgeted in each category based on
likely allocation of expenses.


An NSP assisted homebuyer receives assistance to buy a home, and assistance to have it repaired. The County
holds in escrow the NSP funds needed to repair the home, and assists the homebuyer in the process. The
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amount of funds in escrow does appear on the HUD-1.
Question 1 - Is this eligible?
Question 2 - Is this considered a "A" activity - 2301 (C) (3) (A) financing mechanism or "B" activity - 2301 (c) (3)
(B) purchase and rehabilitate?

I think it is an A since we are financing the rehab activity, not purchasing and rehabilitating the property
ourselves or though our not for profit agencies
I am not 100% sure, since it’s not clear how the financing and rehab work, but it’s okay either way. You can use
funds from more than one Eligible Use on the same property. If that does not answer your questions, please let
us know.


We are struggling to understand all the restrictions that impact one simple use of NSP funds – downpayment
assistance.
Several grantees have indicated that they intend to use NSP funds as downpayment subsidy directly to
homebuyers of foreclosed/abandon property.
While we are sure that it is an eligible use we are not sure what the NSP regs require be repaid to the program if
the owner sells the property.

Under the NSP program, eligible activity under Section 2301(c)(3)(A) is where a grantee just wanting to provide
down payment assistance to an individual to purchase a foreclosed upon home would find this activity as
eligible. However, if the new owner would sell the property in the affordability period what actually would be
considered program income or due back to the grantee from this private individual?

Under Section N, 2 - Alternative requirement for program income (revenue) generated by activities assisted with
grant funds, program income generated by activities carried out pursuant to Section 2301(c)(3)(A), (C), and (D),
it appears that any revenue received by a private individual or other entity that is not a subrecipient must be
returned to the state or unit of general local government.

Here’s an example:
Original Purchase: 2009
Original Purchase Price: $100,000
Homeowner Initial Investment: $10,000
NSP Down payment Assistance: $25,000

Original Purchaser sells property in 2012
Sales Price (great inflation): $175,000
*Due back to the homeowner: $10,000 initial investment
Amount due back and treated as additional CDBG and used in accordance with Section 2301: $165,000
($25,000 original NSP investment in NSP & $140,000 profit by the individual)

PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE MODIFIED AS GUIDANCE ON PROGRAM INCOME
DEVELOPS.


Is Lee County allowed latitude to work outside of their identified areas?

While HUD expects NSP grantees to spend the large majority of their funds in areas of greatest needs, there is
some latitude. If the County can provide a reasonable justification for the activity, it could undertake limited
projects outside the area.

For example, a blighted structure outside the target area may present a substantial negative influence on
surrounding homes, threatening to create many foreclosures or abandonments where only a few now exist. Or a
grantee may wish to de-concentrate affordable housing by redeveloping vacant land outside the target area and
constructing affordable rental housing (with 100% LMMI occupants) or even for-sale housing units.


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Is it acceptable for a property to be deeded to the city by a public institution or non-profit (for example: residential
property owned by a hospital) and have the city rehab the property and then sell it to a household at or below
120% LMMI?

Yes, for single family structures, it is fine under Eligible Use B, if abandoned, since the city can acquire it, and
that can be through donation. If it is multifamily, you would have to redevelop it under Eligible Use E. That does
not allow Rehabilitation, so it could be a problem. We are looking at including rehabilitation under E, but it’s not
clear that we will. It seems like you could provide financing for someone else to do MF rehab-resale, via soft
second mortgages, for example. I am pretty sure that is not what you were asking, but want to make sure.


Can NSP funds be provided to a for-profit investor to assist with the purchase of foreclosed upon rental
properties if the agency enters into an agreement / covenant with the investor to make the rental units available
at to households below 120% AMI with affordable rents for a period of 55 years?

Yes, you may. The affordability provisions of the HOME program (attached) in paragraphs (a), (c), (e), and (f)
are a minimum standard, as described below in the excerpt from the NSP Notice. They only go out 20 years, but
you can require more.

Also keep in mind the Program Income requirements below, from section II N of the Notice. Private entities can
charge a “reasonable development fee”, but essentially must return all profits to the City.


The City of Pittsburgh is working with a developer to construct a new Low Income Housing Tax Credit (LIHTC)
deal on scattered sites. Approximately 25% of the property is City-owned (and was taken via a tax sale). Total
Development cost is anticipated to be $15M. Can the City fund between $500,000 and $1M of its gap
construction loan with NSP funds?

HUD has been defining Eligible Use E, Redevelopment, pretty much in line with the legislative language. If the
properties are vacant, they can be redeveloped under E. If you use E, you can construct new housing on it (but
not rehabilitate it, according to our current reading). Assuming that the scattered sites in question 1 are on
vacant land, it looks okay. However, if they are not inside your areas of greatest need, you would need to
document your justification for expending the funds there.


First, new construction of housing can be undertaken under eligibility category (E). Can this activity be carried
out by a for-profit entity?
YES

Second, can a county, as an entitlement jurisdiction, or a sub-recipient, undertake the purchase and re-
development of a structure which is in an entitlement municipality located within the county's borders without
having to enter into an inter-local agreement with the municipality? Please note that if this can be done, it is the
County's intent to insure that reasonable benefits from the activity accrues to individuals and families residing
within its jurisdiction.

HUD has been requiring cooperation or other consent agreements for such actions. Why would you not get one?
In our experience, if they resist agreeing, it can jeopardize the project.

If a vacant foreclosed upon property with infrastructure partially in place were to be acquired could NSP funds be
used for the development including housing construction? This property will be acquired by a for-profit
developer.

Under Eligible Use E, Redevelopment, grantees may acquire vacant property (and only vacant property). The
presence of some infrastructure does not affect the fact that it is vacant. In most cases, such property should be
located in the grantee’s areas of greatest needs.

Under Eligible Use E, grantees may construct new housing, among other things. This could involve a private

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developer. All of the occupants would have to meet the NSP income limits: no more than 120% of area median
income. In addition, keep in mind that Section II N of the NSP Notice (attached) restricts the use of proceeds in
such transactions. Except for reasonable development fees, all revenue becomes Program Income.


If an eligible homebuyer receives a NSP-backed home purchase loan, can that buyer purchase an NSP-home
that is offered for sale by a non-profit?
YES, see Eligible use (B)

Is this double-dipping?
NO, it is not considered double dipping because the activities would all be unique. For example, a non-profit
may acquire property under eligible use (B) and sell that same property to a homebuyer who received financing
for the purchase of the home under eligible use (A).

Or can both the non-profit and the Housing Finance Agency claim the unit when they report?
The non-profit would report its activities to the NSP grantee, but the NSP grantee is the only entity that would be
reporting information in DRGR. Again, the addresses may be the same, but the activities are different.


Has any determination been made if NSP funds for rental projects can support any type of transitional housing?

Permanent housing may be assisted through the housing parts of the list of Eligible Uses. That is, if someone
can live there indefinitely, then it’s permanent housing.

If it is a shelter or other temporary form of housing, it could be done as a public facility under Eligible Use E,
Redevelopment. Redevelopment must take place on vacant land or vacant structures and meet the national
objectives in a way other than housing (limited clientele, etc).

Is there a limit to the amount of subsidy when transferring a house to an LMI person, especially someone at less
than 50 percent AMI? Might not the house be donated?
There is no limit, but the grantee must justify why this is the best use of its funds.

Is there going to be a cap on the amount of funding that can be invested into any one transaction?
No, there are no caps, but any activity undertaken should be consistent with the action plan amendment that is
submitted to HUD. In addition, the costs must be reasonable as defined by A-87.

If rental activities are undertaken, can the cost of maintaining vacant properties be included in the cost to rent the
property?
Yes, if maintenance is part of rehabilitation and acquisition costs it can be included in the cost of the rental.
However, if you are referring to a different scenario more information is needed before we can offer a response.

Does vacant/blighted land have to be foreclosed in order to buy it? Can people keep equity if they bought the
house but not the land underneath the house?
No, see Eligible use (E).


Job Creation and Retention (Section II(E), page 58335):
According to the notice: “An activity may meet the HERA low- and moderate income national objective if the
assisted activity … creates or retains jobs for persons whose household incomes are at or below 120 percent of
median income.”

Is this relevant to program planning,¬ implementation and compliance, since it appears that all eligible NSP
activities can meet the low- moderate-income objective either by providing homes to low-, moderate-, and
middle-income households (LMMH) or, in the case of demolition or land-banking, performing the activities in an
area that has 51% or more LMMH?

HUD anticipates that there may be some commercial redevelopment that occurs under Eligible Use E,

                                                                                                        Page 42 of 99
Redevelopment, as this is being interpreted to allow acquisition of vacant commercial property. In some cases,
new retail will serve an LMMA area; in others , it is possible that some small offices, over shops, might be built.
This provision allows for job creation there, but HUD does not expect it to be extensively used.


This is a question relative to the use of NSP funds for payment of special assessments. It is my understanding
that this would not be an eligible activity for this particular program under the new rule. However, the question
has arisen if we could use the funds to pay assessments for water and sewer on properties that have been
foreclosed on that are facing expansion of these facilities.

Special assessments are not eligible under NSP, but related public improvements can be paid for activities that
are done under Eligible use (E).

Under the NSP if a house is acquired and rehabbed and sold to an individual as their primary residence the most
that the house can be sold for is the cost to acquire and rehab. The question I have under this activity are:
1. Is there a minimum that the house can be sold for?
2.If the house is sold to a buyer at a discount does the discount count against the 50% limitation on direct
assistance to homebuyers?
3.If both NSP funds and other funds where used to acquire and rehab and the house is sold at a discount is the
discount pro-rated across the different funding sources or can it be all NSP funds?

In answer to your questions:

    1. There is no minimum; it depends on what your affordability definition is.
    2. The 50% limit applies to downpayment assistance. Other means of write-down, such as purchase price
       discounts, soft second mortgages, etc. do not count against that. Multiple sources of assistance are
       allowed, subject to the limits in #4 below.
    3. At minimum, the NSP funds must be prorated. However, as your example suggests, that could all be
       paid at once, becoming program income, rather than $50,000 now and the rest every 30 days. (I think
       that’s what you mean.)
    4. The poles between which you are working are maximum assistance payment according to your
       affordability standards and “reasonable costs” for OMB Circular A-87. If it takes $100K to get house to
       affordability (say 30% of income), then that would be allowable and not unreasonable. If you subsidize
       much further, you would need a solid explanation of the reasons to satisfy A-87. And there are such
       reasons, but you’d need to have them in your policies.


The City is working on another LIHTC deal where the site was originally a high-rise that was foreclosed upon by
HUD. Since this time (more than five years ago) both the City's Urban Redevelopment Authority and a private
LIHTC developer has owned it. The developer currently owns it and was awarded LIHTC to build a new
affordable building on the site. Does this fit the definition of foreclosed?

We discussed this and the decision is that once a property comes out of foreclosure, it is no longer "foreclosed"
for purposes of NSP. I think you are still okay based on previous recommendations. Where this might hurt is if
investors start snatching up foreclosed properties with no intention of doing anything (as is happening in some
places). Then you cannot do anything with NSP except perhaps demolish them if blighted. As the bright guy who
runs the Genesee County (Flint) Michigan tax foreclosure land bank said, "Our main competition is the people
who watch the infomercials on how to get rich on tax foreclosed properties."


Attached is a communication I received from Jeremy DeRoo, the Executive Director of Lighthouse Communities,
Inc., a local nonprofit housing developer. Mr. DeRoo is asking the City of Grand Rapids to consider a broader
definition of what is considered to be a foreclosed property under the NSP rules. Under the definition in the NSP
rules, it appears a property that is foreclosed upon by a lender and sold to an investor would no longer be
considered a foreclosure. As indicated by Mr. DeRoo, many of these properties are purchased for speculative
purposes and continue to negatively impact neighborhoods despite the foreclosure being completed under State
law and the property being sold by the foreclosing lender. Mr. DeRoo is asking that a property be considered

                                                                                                       Page 43 of 99
foreclosed for NSP purposes until the time it is occupied or improved.
The City is currently in the process of completing the required substantial amendment to the annual action plan.
The City is interested to know if it is possible to consider the use of the expanded definition of a foreclosed
property suggested by Mr. DeRoo in developing the program design for use of NSP funds.

We met on this question today. HUD has determined that, once a property is acquired out of foreclosure, it is no
longer considered “foreclosed” for purposes of NSP. Under Redevelopment, Eligible Use E, you can acquire
vacant land and structures. However, that section does not provide for the use of NSP funds for rehab, though
you could use other sources. You could redevelop them into public facilities, or demolish them and build new
affordable housing. It is unclear if or when this policy might change, so you will have to work with it for the
foreseeable future.


Is it true that a NSP recipient jurisdiction may use NSP funds to purchase residential property to be used as a
homeless shelter to provide transitional or temporary housing? Is it also true that these funds used for this
activity will not count towards the 25% set-aside for very low income households?

HUD generally considers homeless shelters to be public facilities, not housing, since they are not permanent
homes.

Some transitional housing may be permitted. If it is permanent housing, it could be acquired and rehabilitated
under Eligible Use B. If the residents are below 50% of AMI, this could count toward that set-aside.

In the cases where it is not permanent housing, the resulting public facilities may be redeveloped under Eligible
Use E. This would include vacant properties that are treated under Redevelopment, Eligible Use E. However,
they may not be used to meet the 25% set-aside.


We may want to purchase a blighted building and demolish it. It is our interpretation of the regulations that the
only way this can be accomplished is to demolish the building (activity D) and then acquire the land (activity E)
and then we can redevelop the property. Activity (D) is only clearance for blighted buildings with no acquisition
allowed. Is this correct? Activity C is for land banks and acquisition is allowed, but only on homes that have
been foreclosed upon.

If the building is vacant, you could purchase it under E, then Demo under D, then redevelop under E.
If not vacant, you could possibly acquire under B if it is foreclosed or abandoned residential property, i.e. does
not have to be single home.


Regarding the regulations stating that NSP funds are to be used to deal with vacant homes already thru the
foreclosure process and not for foreclosure prevention activities. Our mayor has asked if that rule could be
reconsidered and 10-20% of the funds could be used in the proactive mode. The premise being that "if we can
prevent 5 homes from being foreclosed for the cost of taking on one that is already empty, aren't we way ahead
of the game - and using federal funds wisely"?

Very good point, but the legislation does not allow it. The HOPE for Homeowners program that FHA just
launched should help prevent foreclosures.
http://www.hud.gov/hopeforhomeowners/index.cfm


So to confirm:
    • HUD's read is that if it doesn't say "residential" in the table of uses "residential" is not implied, and any
        kind of property (property - not use) counts when non-residential: commercial, mixed use, or vacant
        land.
    • Groups can acquire and "redevelop" non-residential property, but "redevelop" means turn it into
        residential housing, rather than "rehabilitate" it keeping the former commercial or mixed-use use.
        Correct?

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    •   So in the most likely NH type of scenario, a community could acquire a vacant mill building and
        redevelop it into apartments, but not acquire it and turn it into a micro business center (probably - the
        jobs thing aside - no one here is asking to develop micro business centers anyway).

I have another related question which came up in the COSDCA call I was on the other day:

    •   Is it correct that HUD is interpreting the table of uses to mean that if it doesn't say "foreclosed or
        abandoned" in the left hand column, the property in question does not have to be foreclosed upon or
        abandoned to qualify for NSP funding? I was surprised to hear this in the call the other day because I
        had specifically asked about it in the opening session of the DC conference and the answer at that time
        was that HUD was interpreting in the spirit of the law, which was that all properties must be either
        foreclosed upon or abandoned to qualify for NSP funding even if the table of uses didn't specifically state
        it. Opening the door to non-foreclosed upon and non-abandoned property in D and E would help us a lot
        in New Hampshire, but because I had received what sounded like such a clear answer to the contrary in
        DC (which is what I've been telling constituents here) I wanted to double check before I correct the
        information we're giving out to the public.

    •   Yes, d and e can be any kind of blighted or vacant land (respectively)
    •   Right, you cannot undertake rehab with e, but new housing is ok. Under CDBG regs, public facilities can
        include rehab as well as new construction which is eligible under e as well.
    •   Here’s the problem, redevelopment does not include rehabilitation (except public facilities.) Any
        subsequent use would require other funding and still likely have to meet a national objective because
        that is based on the end user. It seems like it should, and maybe it will change, but that’s the way we see
        it now.
    •   Yes, as in first bullet above.

Scenario #1: Is it permissible for the City of Middletown to provide NSP funds to bankable, income-eligible
households for down payment/closing costs plus housing rehabilitation assistance via the FHA 203(k) Program?
Assume that up to $25,000 in NSP funds are provided for DPA ($6,000) and housing rehabilitation (up to
$19,000) as a repayable very low-interest second mortgage in conjunction with a market rate bank first mortgage
of say $68,000.

Scenario #2: Assume that the housing rehabilitation component of Scenario #1 cannot be funded through NSP.
Therefore, would it be permissible to provide NSP down payment/closing cost assistance (soft second $6,000
loan) to bankable, income-eligible households utilizing market rate FHA 203(k) purchase/rehabilitation
mortgages?
There is no problem with the scenario you describe from the NSP standpoint. We are not FHA experts, but the
people who have spoken about this at conferences seem to support it. I don’t know if it’s the 203(k) program, but
one FHA program requires that the house meet code while lender only want to sell as-is. If what you describe
bridges that gap, great. If not, an intermediary like a non-profit housing developer might fill it. Obviously, you
would have to meet the affordability terms you set (at least equal to HOME program periods) and securitize the
financing to recapture program income down the road. It sounds like you are on top of that, but we like to remind
people before it’s too late.

If FHA and the lender can support this, NSP can also.

We heard in Los Angeles that code enforcement (staffing) and abatement/demolition could be allowed with NSP
funds in targeted areas. The strong language we heard was the need for outcomes such that a tangible, market
impactful measure of code enforcement and abatement/demo would be necessary and reviewed. We also
heard that we'd need to couple these activities with other city/private/community initiatives around neighborhood
stability. We would like to confirm this and understand what level of consideration would be advised. This is a
critical tool for areas with high concentrations of foreclosed and abandoned homes coupled with low market
confidence.

Specific questions are:
1. Code enforcement with NSP funds- Is there any guidance on measures and other supporting documentation
that would be needed.

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2. Abatement and Demo using NSP funds- Can the funds be used to board up, clean, fence off abandoned or
blighted properties that we are not acquiring to help stabilize an area of focused NSP and other supporting
activities? Or are we limited to addressing dangerous public health and safety conditions only.

I am sending a copy of this to Lou Kislin in HUD’s Phoenix office, who probably has some ideas also. Initially, I
would say that the code enforcement section of the CDBG Rehabilitation eligibility regs limits you to inspections,
not improvements. The only place Rehab is noted in the NSP regs is under B - Purchase and Rehab of
abandoned and foreclosed homes and residential properties. This makes me think it should be happening in
close physical proximity to homes you are acquiring.

CDBG-correlated Disposition can be done Eligible Use E (Redevelopment) and allows maintenance of
properties that you are acquiring. However, redevelopment-related disposition is not strictly limited to properties
that you purchase, so it seems like you could do some boarding and cleaning. There are no hard rules on
quantifying all this, so I apologize if it’s not defined enough.

I think this all gets back to the focusing on smaller areas and working with other groups because of the
limitations of NSP funding. In my own experience, broad, shallow programs rarely succeed, but tight,
comprehensive ones usually do. If you do have high concentrations, and are working in them with significant
resources, HUD will generally be supportive. You may need to phase things so that you can stabilize a few
blocks before moving to the next area.

If an NSP grantee acquires a foreclosed, abandoned house; rehabs the house and puts it up for sale, can the
NSP grantee provide a first mortgage to the buyer with NSP funds?

Yes. You would be buying and rehabbing it under Eligible Use B. Then Eligible Use A enables you to create
financing mechanisms. It is permissible to use more than one Eligible Use for the same property. Your
underwriting and affordability standards should define limits for the overall level of assistance.

Could you please point to the citation where rehab is not allowed under the “Redevelopment“ but new
construction is? Also in a conference call that was hosted by COSCDA your boss Stan Gimont stated clearly in
response to a question from me that 100% of funds had to be expended in the area of greatest need. Has that
changed? Thanks in advance.
The lists below are supposed to match up better than it looks like they do. Eligible Use E lines up with 24 CFR
570.201 (a) and below. There is no citation for rehabilitation.




We have stressed the need to work within areas of highest need, with rare exceptions. One might be to demolish
a dangerous building that affects an area that might get worse without it.


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Can you let me know if a NSP project is limited to “demolition of a blighted structure” is acquisition of the land
and structure an eligible CDBG expense for NSP in addition to the demolition and clearance costs?

Under Eligible Uses A. B, and C, grantees can only deal with foreclosed properties (also abandoned in the case
of B). You probably know this already, but a grantee can acquire and rehab a foreclosed house under B, but
then may also help finance the sale under A. So there is some carryover allowed between the uses, based on
the correlated CDBG activities.

Demolition can only happen under D, and is limited to blighted structures. They don’t have to be foreclosed or
abandoned, or even residential. They also do not have to be owned by the grantee if they have the legal means
to condemn and demolish them.

If they do want to acquire it, they would have to use Redevelopment, E.U. E. If they need to acquire it before
demolition, the property has to be vacant, as everything done under E must be.

Lara asks if they can acquire without redevelopment. The answer is No. The acquisition of anything but
foreclosed/abandoned residential property must be done as Redevelopment. Redevelopment is supposed to
lead somewhere in the fairly near future. Otherwise there is no way to satisfy the national objective. Land
banking is the exception, but that is limited to foreclosed homes.

On the other hand, Redevelopment might include commercial property that will be redeveloped. After demolition,
it could include new construction of affordable housing. We are also hoping to make a change allowing rehab
under Redevelopment, so that vacant multifamily or commercial structures can be renovated.


NH has drafted our Action Plan and it is currently posted for public comment. I would like to clarify how we
should categorize our planned activities because the categorization is related to the allowable types of property,
as we have discussed separately.

As context we are a small state and no entitlements received direct funds. CDFA, the allocating agency, feels
that the state's strongest capacities are in financing and underwriting. Development capacity is strong at the
local level in most of our high need communities. As a result the state does not intend to do any rehab,
acquisition, etc. directly, but intends to get funds to specific high needs communities to do targeted
neighborhood work. A summary of our proposed programs is below. In the draft plan I labeled them all as "A,"
financing mechanisms, on the idea that CDFA is not rehabbing, making a land bank, etc. But now that I look at it
again, I think maybe these should be identified as B, C, D and/or E items, because in A, the financing seems to
be financing to homeowners as an activity, rather than state financing of community stabilization efforts. Eligible
applicants for the funds below are municipalities, developers, and service agencies, not individuals. Would you
say this is correct?

Also is there any difference between a grant and a loan in HUD's view in terms of what is "financing" and what is
not?

The summary of our programs is as follows and the draft plan is attached if you need to see it (I realize you are
not in position to be pre-reviewing everyone's plan now, but didn't know if it would provide context you need).

                               Summary of activities (activity Detail Sheets Follow):

Total                                    $19.6 million available to New Hampshire
Administration (10%):                   $1,960,000
Net for Program Activities              $17,640,000

Capital Subsidy for Service Enriched Housing                                     $5,000,000
$5,000,000 grant allocation for service-enriched, permanent rental housing. Units or developments funded with
this pool are not eligible for other NSP funds as listed below.

Rehabilitation Grants                                                               $5,625,000
Grant funds for the rehabilitation of NSP buildings including general rehab, energy efficiency improvements, and
                                                                                                       Page 47 of 99
improvements necessary to make for-sale properties marketable; estimate of $75,000 per unit; maximum
combined subsidy for Rehabilitation Grants and Soft Second Mortgages is $100,000 per unit. Units and
developments receiving this funding are eligible for Acquisition Loans also.

Soft Second Mortgages for Home Buyers                                             $1,500,000
Soft second mortgages to qualified home buyers of for-sale housing; estimate of $20,000 per home buying
household; repayable to CDFA upon resale or refinance; maximum combined subsidy for Rehabilitation Grants
and Soft Second Mortgages is $100,000 per unit. Units and developments receiving this funding are eligible for
Acquisition Loans also.

Revolving Acquisition Loan Fund                                                    $5,515,000
Estimated $200,000 per single family unit; on for-sale housing: 0% loan to be repaid to CDFA fully upon sale of
home to qualified homebuyer; on rental housing: 0% loan to be repaid in full upon execution of permanent
financing; on other community development project (for instance, demolishing a building and replacing it with a
park): Converts to a grant upon project completion. If the community development effort subsequently
generates program income, that program income is recoverable by CDFA. Units and developments receiving
this funding are also eligible for Rehabilitation Grants and Soft Second Mortgages.

I left you a message at your office on Friday but I have some answers for you. It appears as though all these
activities would fall under Eligible Use A since it looks like your agency will be offering grants and such rather
than purchasing or rehabbing properties. It’s fine that your applicants are municipalities, developers, and service
agencies rather than individuals. As a reminder, under Eligible Use A, the properties have to be foreclosed upon
homes and residential properties. Also the NSP requirement that 25% of the allocation must serve beneficiaries
who are at or below 50% Area median income would have to be met.

A homeowner currently resides in the home and is at risk of foreclosure, but the foreclosure process has not yet
been initiated or completed. Can the owner do a Deed in Lieu of Foreclosure (DILOF), thereby turning the
property back to the lender. The grantee would then purchase the note from the lender at a discount, sell the
home back to the owner at an affordable price and help them find financing, and the owner would remain in the
home for the entire process.

Is this eligible, or would it be considered foreclosure prevention?

We have had this question and determined that it’s marginally allowable, but that we do not want to promote its
use. Since we have been reading the legislation as literally as possible on other matters, such an interpretation
is consistent with that approach. In the other case, it was a non-profit that took title and served as an
intermediary. Using such a structure would reduce the potential to view this as prevention.


Is it an eligible use to acquire and develop vacant foreclosed subdivision lots that have been improved, but not
built upon?

Is it an eligible use to convert foreclosed commercial properties (i.e. old motels) into residential uses? Would it be
allowed if the foreclosed commercial properties were vacant?

    1. Yes, foreclosed-upon homes and residential properties (including undeveloped lots) may be acquired
       under Eligible Use B and then financed under Eligible Use A for purchase or redevelopment. Properties
       that have not been foreclosed upon, but are vacant, may be acquired and redeveloped under Eligible Use
       E. This could include vacant non-residential properties, as discussed under 2 below.
    2. Commercial and residential properties, whether foreclosed upon or not, may be redeveloped under
       Eligible Use E, but they MUST be vacant. Under Eligible Use E (and only under E), grantees may
       construct new housing to redevelop vacant or demolished properties. At the current time, rehabilitation of
       vacant structures is not permitted under Eligible Use E, but HUD is seeking a technical correction that
       could allow it in the future.

Information on such policy changes is posted on the NSP website, which is updated regularly.
http://www.hud.gov/offices/cpd/communitydevelopment/programs

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If the County purchases a $1 HUD home, can we immediately resell it to a nonprofit to redevelop with NSP funds
and resell to a homebuyer? Or must the County purchase, redevelop and resell to a homebuyer to be an eligible
use under the NSP program because after the County purchases the home it is no longer a foreclosed or
abandoned home?

The purchase and rehabilitation eligible use does not include demolition as a correlated activity. Can a rental
project be acquired and partially rehabbed under the purchase and rehab use and then partially demolished
(clearance for blighted structures ) under the demolition use? Likewise, Is it the intent that a property acquired by
a land bank under the land bank use must use the demolition use and clearance for blighted structures to
demolish the building? Or can the eligible activity of clearance for blighted structures be used under the land bank
use?

On the first question, the fact that it’s coming out of foreclosure and into your NSP program is sufficient. Your
using a contractor/non-profit for rehabilitation does not invalidate that transaction.

On the second question, there are a couple of issues. First, grantees can apply more than one Eligible Use to the
same property. It is possible to demolish a structure under D and then redevelop the acquired land under E, for
example. From what you say about the house needing partial demolition, I think you could accomplish it that way.
It might be simpler just to consider it all part of rehab, since it’s the same structure and involves only some of the
house.

The Land Bank use includes only acquisition and disposition for properties that have been foreclosed on. If the
property meets those criteria, then you could use D for the demolition and then maintain the vacant land in the
land bank.

Under the eligible activity of demolishing blighted structures, are you required to meet the LMI national objective
or does it qualify simply because the structure is blighted?

When structures are demolished on private property are restrictions required to be placed on the property, i.e.
deferred forgivable loans?

If the property where a structure is demolished is privately owned, are there any requirements for redevelopment?


In the NSP Program, there is no slum/blight national objective. However, as long as the demolition occurs in an
LMMI area, demolition can be seen as benefiting the area. Large numbers of demolitions, without other activities
to acquire and rehabilitate foreclosed homes, might undermine that justification. Therefore, HUD strongly
encourages grantees to undertake demolition as part of a comprehensive program in its areas of greatest need.

The NSP Notice allows demolition of blighted structures that are not owned by the grantee. HUD expects, but
does not specifically require, that grantees will follow the customary procedure of placing a lien on such properties
for the full cost of the demolition. When the property is sold, the payment to satisfy the lien would be Program
Income in proportion to the NSP program's share of the cost. Such funds may be retained by the grantee for other
NSP-eligible activities.

There are no requirements for redevelopment of demolished properties. However, under Eligible Use E, grantees
may undertake redevelopment of vacant or demolished property, including acquisition, public facilities, and new
affordable housing. Such redevelopment should occur in the areas of greatest need and bear a strong supporting
relationship to the NSP activities in the neighborhood.


Simple questions I hope. Can an entity that has received an allocation of funding under the NSP use already
existing vacant land which they own to develop affordable housing that meets the income guidelines as contained
in the federal regulations? Or must the property used for development of affordable housing be acquired after the
property has gone through the foreclosure process?

Second part of the question is, if vacant, developable land exists that has not gone through the foreclosure

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process, can NSP funds be used acquire and develop that land for affordable housing with the idea that the
housing will meet the income guidelines in the federal regulations? Bottom line is the eligibility of NSP funding
and the process to acquire property on which to develop affordable housing (i.e. apartments).

A: Yes, per eligible activity E, an entity that has received an allocation of funding under the NSP can use already
existing vacant land which they own to develop affordable housing that meets the income guidelines as contained
in the NSP notice.

A: Yes, under eligible activity E, vacant land that has not gone through the foreclosure process can be acquired
and developed for affordable housing under NSP.


1. The State of Indiana is preliminarily proposing the use of $30.4 million of its $84 million NSP allocation for a
Loan Fund to assist individual homebuyers with up to $20,000 to directly acquire or acquire and rehabilitate
foreclosed and abandoned homes. We (at the Indianapolis Field Office) are really unsure where this activity fits in
the eligible uses of Section 5301 (c) (3) (A) through (E).
2. Eligible Use B seems to clearly state that properties can be purchased and rehabilitated to sell, rent, or
redevelop. It implies that there is an intermediate entity or organization necessary to purchase and rehabilitate
prior to sale or lease to an income-eligible individual or family.
         Does the term redevelop encompass changing the use of a property from abandoned/foreclosed to
         owner-occupied?
         Also, does Eligible Use (B) mean purchase and rehabilitate or purchase only, purchase and rehabilitate or
         rehabilitate only?
         Does eligible use (A) only encompass the establishment of financing mechanisms as an administrative
         cost or program delivery cost of other listed eligible NSP activities or does it allow for the implementation
         of that financing mechanism under that eligible use criteria?

Thank you for your assistance with this. We have at least one other NSP grantee, that is proposing a similar
program for DPA only to purchase foreclosed and abandoned properties.

Please find below an excerpt of the State of Indiana’s proposed Loan Fund:
Loan Fund: $30.4 million of the NSP allocation will fund a revolving loan fund for individuals and families who
choose to purchase abandoned/foreclosed homes. This money will be made available statewide, including those
local communities which received NSP monies directly from HUD. The funding will be distributed through
participating lenders. IHCDA estimates 1,500 previously foreclosed/abandoned homes across Indiana will be
purchased.
Loan Fund
    • Available to owner-occupied home buyers (no investors).
    • IHCDA will coordinate with lenders, mortgage servicers, Fannie Mae, Freddie Mac, and HUD to list their
         foreclosed properties on the web site, http://www.indianahousingnow.org. Lenders will be required to sell
         the properties listed at a discount. The NSP Federal Register Notice addresses purchase discounts of 5
         percent (individual purchase) and 15 percent (aggregate purchases).
    • IHCDA will offer up to $20,000 (not to exceed 20 percent of the purchase price) in down payment
         assistance (as a second mortgage loan) to buyers who purchase listed homes. This assistance may be
         used in conjunction with the IHCDA First Home mortgage product, FHA, VA, or prime fixed-rate
         mortgage. No adjustable rate or subprime mortgages will be allowed. The down payment assistance
         amount will be repayable upon sale or refinance of the home.
    • All buyers must complete 8 hours of pre-purchase homeownership counseling from an approved
         counselor.
    • Buyers' incomes must be at or below 120 percent of Area Median Income (AMI) or must purchase a
         foreclosed/abandoned home in a Census Block Group where more than 51 percent of the residents are
         below 120 percent AMI.
    • Loans may be used for the rehabilitation or repair of damaged abandoned/foreclosed homes. $20,000 is
         the maximum award for rehab/repair funds. These funds may only be used for residential structures
         which do not meet local building codes and are unable to be purchased in their present condition.
    • Home buyers may use both down payment assistance and rehab/repair funding. The combined
         assistance may not exceed $20,000.

                                                                                                      Page 50 of 99
1. Eligible use (A) does provide for assistance directly to LMMI homebuyers. It provides for homebuyer purchase
directly from the financial institution holding title to a foreclosed property.

2. Eligible use (B) does provide for acquisition of foreclosed or abandoned properties by an intermediate, non-
resident entity (government, non-profit, etc.).
    • Yes. Abandoned/foreclosed is not a “use”. “Residential” is a use. “Redevelop” does include activity to
         convert acquired property to nonresidential use (see Part II H of the Notice).
    • Eligible use (B) does provide for acquisition of foreclosed or abandoned properties by an intermediate,
         non-resident entity (government, non-profit, etc.). It does not preclude assistance for direct acquisition by
         a homebuyer under eligible use (A).
    • Eligible use (A) allows for the implementation of that financing mechanism. Implementation is considered
         a program delivery cost.


Our local housing authority purchased a vacant residential structure at a foreclosure sale and will renovate the
building into affordable rental housing. Can we contribute NSP funds to the housing authority to fund renovation
under NSP eligible use B if we are not BOTH purchasing and rehabilitating the residential property as rental
housing? If we provide NSP funds to the housing authority as a bridge loan (an NSP construction loan is repaid
when the project's Low Income Housing Tax Credit equity is contributed), is this activity still eligible under NSP
eligible use B or are we treading into NSP eligible use A that allows financing mechanisms benefiting only home
buyers?

You may renovate a vacant residential structure acquired by the housing authority without using NSP funds to
acquire it. However, as you noted, Eligible Use A allows only financing mechanisms for houses occupied by
purchasers. Therefore, a bridge loan would, as a financing mechanism, not be permissible. It seems advisable to
use the NSP funds directly for rehab. If the tax credit can reimburse the city later, that would be program income.
If not, perhaps the credit could be used for another unit.

Do the resale/recapture provisions apply?
In its NSP action plan substantial amendment, a grantee will define ‘‘affordable rents’’ and the continued
affordability standards and enforcement mechanisms that it will apply for each (or all) of its NSP activities. HUD
will consider any grantee adopting the HOME program standards at 24 CFR 92.252(a), (c), (e), and (f), and
92.254 to be in minimal compliance with this standard and expects any other standards proposed and applied by
a grantee to be enforceable and longer in duration. (Note that HERA’s continued affordability standard is longer
than that required of subrecipients and participating units of general local government under 24 CFR 570.503 and
570.501(b).

The answer is yes. Under 92.254, the grantee establishes either resale or recapture restrictions to ensure
continued affordability of homeownership housing. (92.252 covers rental housing.)
PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE MODIFIED AS PART OF FURTHER ANALYSIS OF
PROGRAM INCOME AND LONG TERM AFFORDABILITY RULES.

We are considering a rent to own program, where the property is first rented to an income qualified family while
we work with them to save a down payment and get their credit improved. If something happens where it
becomes necessary to evict the tenant later, will we have to pay relocation benefits?
Under the URA, a person who is evicted for cause (see 49 CFR 24.206) is not eligible for relocation assistance.
The complicating factor here might be what is behind the question—do they anticipate evicting the tenant because
at some point in time the tenant may be unable to fulfill the purchase requirements or are they anticipating that the
tenant may become delinquent on the rent (which would clearly fit the eviction for cause requirements)?

10% Admin requirement- can the amount of NSP funds appropriated for administration automatically meet LMMH
national objective such as CDBG general administration counts as automatically meeting LMA national objective?

The CDBG rule is based on the assumption that admin costs will be used in the same proportion as the remainder
of the grant, split among LM, slum-blight, and urgent needs national objectives. However, in NSP, 100% of the
funds must benefit LMMI persons, so it is a moot point. See part II E of the attached Notice for further description

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of ways to meet this requirement.

There will be a period of time between acquisition, rehab, and resale where the entitlement community will need to
maintain the property (grass cutting, snow removal, insurance, etc.). Can the entitlement community recover
those costs from NSP funds as a delivery cost related to the activity?

Yes, you can do this. Several sections of the NSP Eligible Uses, which are correlated with CDBG Eligible
Activities on page 58338 of the attached NSP Notice, and excerpted below, allow Disposition. The CDBG regs
specifically permit temporary property maintenance as part of Disposition. The only constraint for NSP is that you
cannot add these costs to the eventual purchase price.


Environmental Review

1. Under CDBG environmental regulations, we are required to complete a formal environmental assessment or
EA (per 24CFR58.36) when acquiring/rehabitating/disposing of five or more housing units that are within 2,000 feet
of each other. An EA takes take 3 - 4 months to complete through the FONSI/NOI/RROF/ROF process and may
cost in excess of $10,000. One of our strategies for the NSP program is to focus resources on geographical target
areas, which could involve acquiring and rehabilitating owner occupied single units within 2000 feet of each other.
Under the NSP guidelines and requirement for commitment of funds within 18 months, would acquiring and
rehabilitating single units within 2000 feet of each other require an EA?

2. Under environmental review, will acquiring vacant residential structures, rehabilitating and reselling them as
residential structures (without any change in the number of dwelling units) be considered increasing residential
density for the purposes of completing environmental Appendix A forms? When an increase in density is involved,
we are required to inspect the area within a mile of the site for above ground explosive or flammable hazards, and
if these cannot be mitigated we are required to deny the site for HUD funding.

3. We already have CDBG programs in places which have received environmental clearance (contingent on site
specific reviews) and a Release of Funds from HUD. Certain NSP programs will be the same as the current
CDBG programs. Can NSP funds be considered 'supplemental assistance' per 24 CFR 58.35(b)(7), so as not to
require another environmental review and Release of Funds?

1. The environmental regulations at 24 CFR 58.35(a)(3)(i) and 58.35(a)(5) do not require an environmental
assessment when acquiring, rehabilitating and/or disposing of five or more existing housing units that are located
within 2,000 feet of each other. Generally, rehabilitation, acquisition and disposition actions are categorically
excluded from the National Environmental Policy Act (NEPA) and, absent extraordinary circumstances (see
§58.2(a)(3) for definition of extraordinary circumstances), an Environmental Assessment is not required.

Rehabilitation of residential buildings (with one to four units) is categorically excluded from NEPA, but is subject to
review under the federal environmental laws and authorities at §58.5 when the density is not increased beyond
four units, the land use is not changed, and the footprint of the building is not increased in a floodplain or wetland.
(See 24 CFR 58.35(a)(3)). Acquisition or disposition of an existing structure is also categorically excluded from
NEPA, but subject to review under the federal environmental laws and authorities at §58.5 provided that the
structure will be retained for the same use. (See 24 CFR 58.35(a)(5)). In accordance with 24 CFR 58.35(a)(6),
combinations of categorical exclusions listed in §58.35(a) may be combined, allowing for the acquisition,
rehabilitation and disposition of an existing single family house to be categorically excluded from NEPA.
2. Appendix A refers to recommended format designed to meet the specific needs of Region 9. For more
information specific to Region 9 forms, please contact your Region 9 HUD Environmental Officer. Ernest Molins
(northern CA, NV, HI and Guam) at 415-489-6731 or Ernest.Molins@hud.gov. Elizabeth McDargh (southern CA
and AZ) at 213-534-2578 or Elizabeth.McDargh@hud.gov.
It is HUD policy that where HUD funds are used to rehabilitate or reconstruct housing on a site where housing
previously existed, 24 CFR Part 51, Subpart C does not apply if the number of dwelling units on the site is not
increased. The responsible entity will need to document in the environmental review record that Subpart C does
not apply because the number of people exposed to hazardous operations is not increased.

If there is an increased number of dwelling units on the site, then compliance with 24 CFR Part 51, Subpart C is
required and the responsible entity must not approve projects located at less than the acceptable separation
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distance from a hazard, as defined in §51.201, unless appropriate mitigation measures are implemented or are
already in place. (See 24 CFR 51.202(a)). The acceptable separation distance (ASD) is the distance from above
ground stationary containerized hazards of an explosive or fire prone nature, to where a HUD assisted project can
be located. HUD has developed an on-line calculation tool to help responsible entities assess the ASD. See
http://www.hud.gov/offices/cpd/environment/asdCalculator.cfm Additional guidance on 24 CFR Part 51, Subpart C
is available in the Department's guidebook "Siting of HUD- Assisted Projects Near Hazardous Facilities" which can
be found on-line at http://www.hud.gov/offices/cpd/environment/training/guidebooks/hazfacilities/

3. An environmental review needs to be amended and recertified, as appropriate, when there are changes in the
scope, magnitude, location or environmental circumstances of a proposal. If these factors regarding a HUD
environmentally approved proposal do not change, then the addition of other funds by the same responsible entity
will not require additional environmental review or certification or clearance. However, a determination that the
project description (including the scope, magnitude, location or environmental circumstances), as environmentally
approved, has not changed, is required.

In lieu of a Request for Release of Funds/Certification for the new NSP funds, the program office may ask the
responsible entity to send in a copy of this determination and a copy of the first Authority to Use Grant Funds
issued for the same project.

    •   After a Neighborhood Stabilization Program grantee acquires real property with its NSP funds, are
        subsequent transfers of real property subject to HUD environmental compliance review requirements?

    •   How does the NSP Request for Release of Funds process apply to a CDBG entitlement grantee that is
        getting both formula NSP entitlement community funds and formula State NSP funds?

    •   Since land banking is not allowed under the CDBG program, are there special rules governing how land
        banking is assessed?

    •   Are NSP State formula grantees required to be in communities that participate in the National Flood
        Insurance Program?

    •   All HUD environmental compliance review requirements apply only to federally assisted projects.
        Therefore, as long as the Community Development Block Grant Program requirements apply to the
        transfers of title and or the use of the property as a result of the transfer, HUD environmental review
        requirements apply. For the Neighborhood Stabilization Program this means that environmental review
        requirements will apply:

            1) When an NSP-acquired or -assisted property is sold to a homebuyer,
            or to some other purchaser such as to operate a multifamily building or for a redevelopment purpose,
            and no more NSP funds will be used; or,

            2) When all NSP funds that have been committed to the property have been expended on the property
            (no more than four years after receipt of funds);
            or,

            3) When a land-banked property is dedicated to a permanent use (in no more than ten years).

    •   There has to be two separate Requests for Release of Funds from the Entitlement Community. One
        would be directed to the State for the NSP State formula funds and one to HUD for the formula NSP
        entitlement community funds.

    •   There are no special rules for land banking. However, one must be aware of whether land banking the
        property will result in a change in land use. If not, then a compliance review of only related environmental
        laws (§58.5) is required. But if there is a change in use, an environmental assessment for compliance with
        the National Environmental Policy Act is required too (§58.35(a)(5)).

    •   Non- entitlement NSP grantees receiving NSP State formula funds are not required to be communities that

                                                                                                    Page 53 of 99
        participate in the National Flood Insurance Program. However, if any an entitlement community is
        receiving both NSP State formula funds and NSP entitlement community funding, they must participate in
        the National Flood Insurance Program because they are an NSP entitlement community grantee.

Financing Mechanisms

If a local grantee is working with a local non-profit to create owner-occupied housing utilizing NSP funds:
Would a lease/purchase option operated by the non-profit/CHDO be considered an eligible form financing
mechanism for homeownership?
If so: How would the non-profit/grantee hold or account for the monthly payments to comply with NSP income
requirements?

Yes, lease-purchase would be eligible, though it should be accompanied by the required 8 hours of counseling.
The monthly rent would be considered program income. See Section N of the NSP notice for further information.


Could a NSP grantee provide financing incentives to prospective buyers of foreclosed property to purchase
directly from the bank/lender without the grantee itself acquiring the property??

YES

In consideration of the Activity of Financial Mechanisms, can the general local government provide assistance to a
non-profit for purchasing vacant land for redevelopment?

The category of Financing Mechanisms is generally limited to financial instruments such as second mortgages. It
is likely, however, that you could accomplish your goal under the Redevelopment activity, which has considerable
flexibility.

I run a Community Development Financial Institution that is a certified CDFI with the CDFI Fund of the U.S.
Treasury. A few NSP grantee's have begun conversations with my agency regarding ways that they might re-
grant NSP funds to my agency, the Chicago Community Loan Fund, for us to use as permanent capital. We would
then use the NSP funds to attract debt from banks at very low interest rates that we would in turn re-lend to CDCs
to buy and rehab foreclosed homes. We need the permanent capital grant in order to borrower from banks as our
industry's safety and soundness guidelines require that we maintain at least a minimum 25% permanent capital
base in our loan pools at any given time.
Here is a very simple example of how the leveraging could work: if a CDC were to receive a $2,000,000 NSP
grant, assuming it cost $150,000 to buy a foreclosed home on average, it could purchase 13 homes. If my
agency, as a revolving loan fund, received a $2,000,000 NSP grant, we would then be able to recruit $6,000,000 in
investments from banks (and others) at below market rates. We would then lend the $6,000,000 to CDCs to
acquire foreclosures. Thus, using the aforesaid purchase price, CDCs could buy 40 homes. Essentially, NSP
funds could potentially be used very effectively to acquire three times as many homes.

Sounds great. NSP would consider this a Financing Mechanism, Eligible Use A (see attached notice). That list is
not exclusive, and this type of leverage certainly expands the reach of the program, so there is no problem with it
from HUD’s perspective. I realize that you are just providing a sketch, but if the purchase price needs to be written
down, that might affect your permanent capital base. Or does that burn off once you have made a loan to the
CDC?

Keep in mind that somebody has to be underwriting these purchases both for affordability as well as to ensure that
the houses are not overly subsidized. Whether that happens at your level, at the CDC level, or somewhere else, it
does need to happen. You also need to assure long term affordability, the term of which varies with the amount of
subsidy per unit. You probably have this all figured out, but I just want to make sure.

Our financial division advises that the funds must be drawn down and deposited as the loans are made, not in a
lump sum up front.
(See follow-up question and guidance below.)


                                                                                                     Page 54 of 99
No direct reply yet (11-25-08). See related answer to following question.

Given the challenging mortgage market, the state Housing Finance Agency (HFA) we would like to create a
mortgage revenue bond loan program that would use prudent underwriting while reaching out to a lower credit
score population with the use of NSP monies to fund a loan loss reserve for this HFA loan product.
This loan loss reserve would provide the credit enhancement for 300-500 housing units to purchase an abandoned
or foreclosed property with up to 100% LTV (based on the discounted purchase price). The HFA would require
that all household using this product receive the 8 hrs of homebuyer education and would apply for NSP funds to
pay for the education for these units with our non -profit partners throughout the state.
The loan loss fund would remain in place until all of the loans covered with these funds are paid off. Due to the
nature of a loan loss reserve it is expected that the HFA would not be required to list transactions that would be
covered within the reserve, since no one knows which properties may ever be delinquent and need the coverage.

1) With the use of NSP funds what would the required documentation for the loan loss reserve?
A: HUD EXPECTS A GRANTEE TO BE ABLE TO DEMONSTRATE THAT THE METHODOLOGY USED TO
DETERMINE THE RATE THAT WOULD BE APPLIED TO INDIVIDUAL LOANS BE INDICATIVE OF THE NET
COST OF LOSSES ON THE LOANS. HUD PREFERS A METHODOLOGY THAT REFLECTS THE FOLLOWING
APPROACH: THE RATE APPLIED TO LOANS SHOULD BE DEVELOPED BASED ON ESTIMATES OF
FUTURE DEFAULTS (INCLUDING TIMING), RECOVERY RATES (INCLUDING TIMING OF RECOVERIES),
AND OTHER FACTORS (E.G., COSTS OF RECOVERY) THAT WOULD AFFECT THE ESTIMATES OF FUTURE
LOSSES. THE LOSS RATE USED TO DETERMINE THE AMOUNT DISBURSED INTO THE LOSS RESERVE
AS EACH LOAN IS MADE SHOULD BE DERIVED BY DISCOUNTING NET CASH FLOWS (I.E., LOSSES-
RECOVERIES-+ OTHER RECEIPTS/DISBURSEMENTS) TO THE PRESENT AND DIVIDING THE RESULT BY
THE NET PRESENT VALUE OF LOAN DISBURSEMENTS OVER THE PERIOD THAT LOANS WILL BE MADE.
THE ESTIMATES OF FUTURE LOSSESWOULD NORMALLY BE BASED ON HISTORICAL DATA FOR
COMPARABLE LOANS.

Would at least 25% of the loans covered in the reserve need to be under 50% AMI?
A: NO, BUT THE USE OF NSP FUNDS BY HFA WOULD BE INCLUDED IN THE OVERALL CALCULATION.

2) Would the use of the NSP funds in the loan loss reserve escrow account be considered a direct use of NSP
funds to each of those loans?
A: YES

3) Would the use of these funds in a loan loss escrow require that each of the properties in the pool be subject to
the Inspections, Environmental review, etc , requirements of the NSP funds?
A: YES. IF NSP FUNDS ARE USED WITH RESPECT TO ANY LOAN, THE PROCEEDS OF THAT LOAN MUST
BE USED IN ACCORDANCE WITH THE REQUIREMENTS THAT WOULD APPLY IF NSP FUNDS HAD BEEN
USED DIRECTLY.

4) Is there anything that would prohibit a borrower who uses the HFA loan that is backed by the loan loss escrow
from using other NSP funds for down payment and/or rehab needs, if the NSP funds come through another non-
profit within the state?
A: NSP FUNDS CAN BE USED TO SUPPLEMENT FINANCING UNDER PRIVATE LOANS SO LONG AS NSP
FUNDS ARE USED IN ACCORDANCE WITH APPLICABLE REQUIREMENTS.

5) If there is interest earned on the loan loss reserve fund, it is our expectation that the earnings would remain in
the loan loss escrow and over time provide the credit enhancement to more units.
A: THE METHODOLOGY DESCRIBED ABOVE ASSUMES THAT THE INTEREST EARNED ON THE LOSS
RESERVE WOULD BE USED IN CONJUNCTION WITH THE INITIAL DEPOSITED FUNDS TO PAY LOSSES AS
THEY OCCUR. THUS, IT IS NOT EXPECTED THAT MATERIAL AMOUNTS OF INTEREST WOULD BE LEFT
TO CARRY OUT ADDITIONAL ACTIVITIES.

Even after the July 2013 date, could these earnings continue to remain in the growing loan loss escrow until all of
the loans in the pool have been paid off?
A: YES. AGAIN, THE METHODOLOGY ASSUMES THAT FUNDS IN THE LOSS RESERVE WILL BE
INVESTED AND THE EARNINGS USED (IN CONJUNCTION WITH THE ORIGINAL DEPOSIT) TO PAY
LOSSES AS THEY OCCUR.
                                                                                                     Page 55 of 99
Would the balance of the loan loss escrow, after all of the loans have been paid off, be required to b returned to
HUD or could the HFA seek a waiver to keep the loan loss fund to continue to be a credit enhancement for another
generation of loans? This would certainly provide long term use of the NSP funds.
A: IF FUNDS REMAIN AFTER ALL LOANS ARE REPAID, THEY SHOULD BE RETURNED TO THE NSP
PROGRAM ACCOUNTS AND USED IN ACCORDANCE WITH REQUIREMENTS THEN IN EFFECT. NOTE
THAT HUD EXPECTS GRANTEES TO PERIODICALLY EVALUATE LOSS THE LOSS RESERVES AND
ADJUST THE AMOUNT IN THE RESERVE BASED ON ACTUAL EXPERIENCE ON LOANS AND ESTIMATES
OF FUTURE LOSSES.

Question on the creation of a “Reclaim the Neighborhood” Loan program:
         The state Housing Finance Agency (HFA) would like to create a program to work with the lenders who are
about ready to complete the foreclosure process and take title to the property. The HFA would contact that
delinquent household and see if they desire to remain a homeowner, determine with manual underwriting exactly
what loan amount they qualify for; require that they participate in home buyer education provided by our non-profit
housing counseling partners throughout the state (paid for with HFA acquired NSP funds). If the homeowner is
approved, the HFA would negotiate the purchase discount of the home, purchase the property, and transfer the
title back to the original homeowner and place the household in a 0% interest 30 yr loan.
IT ISN'T CLEAR HOW THIS PROGRAM WOULD BE STRUCTURED. WILL THE HFA PURCHASE THE
PROPERTY WITH ITS OWN FUNDS AND SELL THE PROPERTY TO THE HOMEBUYER, TAKING BACK A
PURCHASE MONEY MORTGAGE. OR, WILL IT PURCHASE THE PROPERTY WITH NSP FUNDS AND TAKE
BACK A PURCHASE MONEY MORTGAGE. IT CAN'T USE NSP FUNDS FOR A LOSS RESERVE UNDER THE
SECOND SCENARIO. ALSO, THE HFA SHOULD BE REMINDED THAT NSP FUNDS CAN ONLY BE USED TO
ASSIST IN THE PURCHASE FORECLOSED UPON PROPERTIES UNDER 2301(c)(3)(A) AND ABANDONED
OR FORECLOSED PROPERTY UNDER 2301(c)(3)(B).
 The HFA would ensure that at least 25% of the households using the NSP funds are do not exceed 50% AMI.

1) NSP funds are used by the HFA as the funds to purchase the property. The loan is a 0% interest loan, are the
Principal payments received to repay the loan considered as program income?
A: YES.
Principal received would be used to provide more buyers with the same program as funds accrue.

2) What would the required documentation be to the HFA using this program since the funds went to the HFA and
not directly to the buyer?
AMONG OTHER DOCUMENTATION, THE HFA WOULD HAVE TO DOCUMENT THE CURRENT MARKET
APPRAISED VALUE, PURCHASE DISCOUNT, AND INCOME ELIGIBILITY OF THE HOMEBUYER.

Would the use of these funds in a loan loss escrow require that each of the properties in the pool be subject to the
Inspections, Environmental review, etc , requirements of the NSP funds?
A: SEE ABOVE COMMENT. NSP FUNDS CAN'T BE USED FOR LOSS RESERVES IF IT IS TAKING BACK A
MORTAGE.

3) Would the use of the NSP funds in the “Reclaim the Neighborhood” program account as a direct use of NSP
funds to each of those borrowers?
A: UNCLEAR ABOUT HOW THE PROGRAM WOULD BE STRUCTURED. THE QUESTIONER SHOULD BE
ASKED TO PROVIDE ADDITIONAL INFORMATION.

4) Is there anything that would prohibit a borrower who uses this HFA loan from using any other NSP funds for
down payment and/or rehab needs, if the NSP funds are from another non-profit within the state?
A: NO, IF THE OTHER NSP FUNDS ARE USED TO SUPPLEMENT THE HFA ASSISTANCE AND THE USE OF
THE NSP FUNDS COMPLIES WITH APPLICABLE REQUIREMENTS.


CDBG allows down payment assistance to be up to a maximum of 50% of the banks down payment requirement.
Has this been waived in the NSP program.

No. However, grantees may reduce the purchase price, provide low-interest loans and so forth to reduce the costs
further. These are not subject to the downpayment limit of 50%.

                                                                                                    Page 56 of 99
The only lending that is being done in my community for lower priced property is FHA. FHA requires that the
house be brought up to FHA standards before a loan be done. Could FHA waive those requirements if the local
government guarantees the NSP money to fix up the house?

This seems to be a widespread issue. From what I discovered in researching it, it does not appear that a solution
is imminent. That said, I know that FHA is working hard on these problems, so it could turn around.

As alternatives, you might want to consider using the NSP grant to develop financing mechanisms. Working with
local lenders, for example, you could establish a loan loss reserve, basically like a local mortgage guarantee fund,
that would induce the lenders to make conventional loans knowing that the reserve fund would limit their liability.

Alternatively, you could use an intermediary like a non-profit housing developer to acquire the properties, repair
them to FHA standards, then sell them with the FHA insurance. The sale proceeds would be program income that
you could revolve back into the program. The NSP funds could support the acquisition or the rehab or both.


How well does this program concept fit within the NSP reg?: Homebuyer of a foreclosed house receives NSP
funds as a “Financing mechanism”, a subordinate loan for part of the purchase price. NSP funds also are used to
pay for rehab. The total amount of the assistance will be rolled into a “soft second”. These soft seconds will, at a
minimum meet HOME requirements to ensure affordability; we may use shared equity. In some cases, however,
the value of the house after rehab may not support securing all the assistance in the soft second loan; some small
amounts may need to be grants, or expenses to the NSP program.

We may also have a “Financing mechanism” for modest amounts that functions like HD’s ADDI program: $10,000
either recaptured/forgiven per HOME affordability periods, or due on sale

You may actually be combining Eligible Uses A and B, but it sounds fine. The soft seconds or other mortgages
would be Financing Mechanisms. If NSP funds are used to purchase the homes, this would be B, Acquisition and
Rehab. Either way, it is acceptable overall. You may discount the purchase price or pay closing costs, in addition
to making a grant of up to 50% of the downpayment to cover amounts above appraised value at time of sale. HUD
suggests using the HOME program affordability provisions (attached) or something more restrictive.


If a grantee or subrecipient purchases a vacant foreclosed home with NSP funds and uses other private financing
for the rehab, can we use the matrix code 01 (Acquisition of Real Property), in which case we could use the LMA
national objective, meaning we could sell the home to a household over 120% AMI (provided that the home is
located in a low-mod area in accordance with the LMA/LMMA national objective)?

I will seek another opinion, but I fear you are on thin ice with this one. ALL NSP activities must benefit LMMI in
some fashion. When you acquire property, perhaps you benefit the LM neighborhood, but the real beneficiary is
the person buying the house. Since you are only using NSP for acquisition, there may be a little flex.

The Notice, under Land Banks, says that if the land bank is "carrying out other activities intended to arrest
neighborhood decline, such as maintenance, demolition, and facilitating redevelopment", HUD will consider the
acquisition alone to qualify under LMA.

Let us ponder this for a while and get back to you.

Sorry it took so long, but my suspicion was confirmed. There needs to be an LMMI beneficiary, which would be
the end user. We are allowing Demolition in an LMMI to benefit the area, since it improves the neighborhood and
it's hard to have any other kind of benefit if the land stays vacant. For all other uses, we require an end user who
is LMMI.

1) I am working on a "financing mechanism" program that includes down payment assistance and funds for
housing rehabilitation for eligible homebuyers interested in purchasing a foreclosed homes in the City of Sterling
Heights. Does the minimum 5% (overall 15%) property purchase discount still apply under this type of program?


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2) I have attached a rough draft outline for our NSP homebuyer assistance program. Can I ask you to let me
know if it is NSP eligible or should I direct it to the Detroit HUD office?

3) If after a certain period of time, for example 10 months into our 18 month obligation period we find that a
program is not working can we amend our substantial amendment to include a new NSP eligible program?

Yes, the purchase discount applies to all acquisitions of foreclosed homes, whether by a public agency or a
private party. This includes homes purchased in conjunction with an Eligible Use A Financing Mechanism.
Yes you can amend the program if problems arise. HUD realizes that this may happen.


I'm checking in on the issue of structuring funding programs at the state level and whether that impacts the
categories under the eligible use tables. We are at the mid-point of our public comment period so it would be
great if we could learn whether we'll need to restructure the program so we can ask for public input on any
substantial changes.

It appears as though all these activities would fall under Eligible Use A since it looks like your agency will be
offering grants and such rather than purchasing or rehabbing properties. It’s fine that your applicants are
municipalities, developers, and service agencies rather than individuals. As a reminder, under Eligible Use A, the
properties have to be foreclosed upon homes and residential properties. Also the NSP requirement that 25% of
the allocation must serve beneficiaries who are at or below 50% Area median income would have to be met.


The city of Charlotte is considering partnering with Self Help to operate part of its NSP. One scenario has the city
establishing a loan loss reserve to leverage significant Self Help investment. How will loan loss reserves meet the
18-month use and 4-year expenditure requirements? Will the lump sum drawdown administrative requirements at
24 CFR 570.513 apply to NSP loan loss reserves?

As I understand it, grantees may use lump sum drawdown procedures with NSP, but they are not the same as
loss reserves. Primarily this is because Paul does not want these funds to go out in a single unit, but rather one at
a time. I have a CDFI in Chicago that has been trying to do this also.



A grantee wishes to make a loan to a non-profit entity (the “Developer”) to finance the purchase of foreclosed
upon homes and residential properties for rehabilitation and resale to low- and moderate-income homebuyers.
Upon completion of the rehabilitation, the Developer will sell each property to an NSP income eligible homebuyer
and take back a “purchase money mortgage” (i.e., a promissory note secured by a lien on the property). The
payments received by the Developer on the purchase money mortgages will be used by it to finance the purchase
and rehabilitation of additional foreclosed upon properties for subsequent resale to NSP income eligible
homebuyers. The Developer will take back a purchase money mortgage on each sale. The terms of the
grantee’s loan to the Developer may provide for no interest and no principal amortization until the maturity date.

Is this activity eligible? Must the revenue received by the Developer from payments on the purchase money
mortgage be returned to the grantee or can it be retained by the Developer for similar uses? Must the revenue be
returned to HUD after five years?

The activity can be carried out as a financing mechanism pursuant to Section 2301(c)(3)(A) and is an eligible
rehabilitation activity at 24 CFR 570.202. The NSP Notice published in the Federal Register on October 6, 2008,
provides that revenue received by a private individual or other entity that is directly generated by an activity
carried out pursuant to Section 2301(c)(3)(A) must be provided to the grantee. However, since the grantee could
immediately use that revenue to make another loan to the Developer for a similar activity, the loan agreement
between the grantee and Developer can provide for continued use subject to compliance with all applicable NSP
requirements. Revenue generated by activities carried out pursuant to Section 2301(c)(3)(A) does not have to be
returned to the grantee after five years.



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Does a servicer of second mortgages derived from Neighborhood Stabilization Trust funds (CDBG) need to be a
HUD approved servicer? Can an organization that is Fannie Mae approved servicer and S & P rated perform
servicing on loans - second mortgage and other- derived from these sources

There is no requirement in the NSP Notice regarding qualifications for servicers of second mortgages. Grantees
(cities, states) may impose their own requirements in accordance with relevant laws and regulations. They must
undertake due diligence on certain activities, for example, in accordance with OMB Circular A-87. However, HUD
itself has no explicit requirements for the NSP program. I hope this answers your question.

What are the requirements for first mortgage servicing for loans derived from the NST funds?

The NSP Notice does not address the role of servicers and thus HUD has not established any requirements for
servicers. We recommend that municipalities contracting with servicers develop requirements suitable to the
needs at the local level that conform to state and local laws.


Formula Allocation

Based on the information released today, the City of Peoria, IL will not be receiving any funding through the NSP.
We understand that the allocation was based on a formula, and have reviewed the formula information provided.
However, could you send more detailed information on where Peoria fell in the overall rankings? Although we
may have been hit as hard with housing problems as other communities, we have felt the impact, and several
communities smaller than Peoria were funded in Illinois.

Thank you for your question. Additional information on the NSP allocation methodology has been posted to the
website. Please see "raw data for NSP grantee allocations" under HUD Resources. It is also important to note
that cities that do not receive direct NSP appropriations are eligible to request NSP funding from the state's
allocation. For your information, the Illinois State Program will be receiving just over $53 million.


Looking at the allocations for NJ I had a question. Why is it that some towns and counties, such as Bergen
County, had specific allocations instead of just being part of the larger NJ State allocation?

Also, what body within NJ manages the allocations? Is it different for each state?

Thank you for your questions. Additional information on the NSP allocation methodology has been posted to the
NSP website. Please see "raw data for NSP grantee allocations" under HUD Resources.

In response to your second question, each NSP grantee will have the flexibility to determine how it plans to
manage its NSP grant. When NSP grantees submit their action plan amendment to receive their NSP allocation,
they will indicate how they plan to manage the funds. In some cases, NSP grantees may choose to manage their
grants collaboratively with other NSP grantees or contract out to a private organization. HUD will post contact
information for each NSP grantee as soon as the information becomes available.


Please see my question in the attached form. I live in a neighborhood that was hit very hard by mortgage fraud
and foreclosure, and neighbors have been working overtime to revitalize the area. Receiving funding from the
Neighborhood Stabilization Program would do wonders for our efforts. Any help on how to go about the process
would be greatly appreciated.

Thank you for your question. Please be advised that NSP grants are only distributed to designated NSP
grantees, which are comprised of state agencies and local governments. Each grantee will have to determine
how best to allocate its NSP grant so long as it complies with the eligible uses described in Title III of the Housing
and Economic Recovery Act of 2008. When NSP grantees submit their action plan amendment to receive their
NSP allocation, they will indicate how they plan to manage the funds. In some cases, NSP grantees may choose
to manage their grants collaboratively with other NSP grantees or contract out to a private organization. HUD will
post contact information for each NSP grantee as soon as the information becomes available.

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I was extremely surprised not to see Saginaw, MI on the NSP grant list. We have a tremendous number of
foreclosures here. Would you please send me Saginaw, MI's numbers as they pertain to this program, so I may
see how we compare to the other cities/counties on this list. Is it possible that we may still qualify for this
program?

Additional information on the NSP allocation methodology has been posted to the NSP website located at
www.hud.gov/nsp. Please see "raw data for NSP grantee allocations" under HUD Resources. It is also
important to note that local governments that do not receive direct NSP appropriations are eligible to receive NSP
funding from the state's allocation.


I received a question from the state of Alaska and they are asking if there is a contact person they can talk to who
could speak to the data used in the NSP formula.

Is there such a contact person I can refer them to?

The short answer is no. The formula allocation was developed by a team HUD staff and their allocation
methodology is posted on the NSP website. They have not made themselves available to speak with NSP
grantees. However, they did provide us with the raw data used calculate the allocations. Please refer the Alaska
State Program to these documents on the website.


How much is allocated to Lynwood? How can we get started?

Thank you for your question. Lynwood, California did not receive a direct NSP appropriation. However, the
California State Program received $145 million and Lynwood will be eligible to receive NSP funding from the
state’s allocation. Application materials are not available yet. HUD will post contact information for each NSP
grantee as soon as the information becomes available. Please check the NSP website for updates.


I represent an Urban County in the CDBG program which is slated to receive $17million in Neighborhood
Stabilization Program funds. Can you tell me when the federal regulations will be released for this initiative?

Thank you for your question. The federal Register Notice is currently available on the website at
www.hud.gov/nsp


Do you know if the HUD formula for Wayne and Oakland and Macomb took into consideration the needs of those
direct entitlements (under the normal CDBG allocation) who did not get a direct allocation of NSP money.

Examples – Is Dearborn Heights needs calculated in the Wayne County numbers? Is Roseville considered in
Macomb County‘s numbers? Is Royal Oak considered in Oakland County’s numbers? ETC.

Yes, local governments that do not receive direct NSP grants are eligible to receive NSP funding from the state’s
appropriation.

The City of Brea was unable to attend the CDBG Neighborhood Stabilization Program conference call last
Friday. We would like to obtain more information about the program. Is the program exclusively for entitlement
cities or are non-entitlement cities eligible for funding (Brea has a population of just over 40,000)?

Thank you for you question. Please visit the NSP website for information on the program www.hud.gov/nsp

Apparently, the City of Tempe did not meet the $2 million threshold needed in order to receive the NSP funds
directly. The formula used by HUD is spelled out, but too complicated to review. Would it be possible for HUD to
send those CDBG entitlement communities that did not meet the $2 million threshold, the amount HUD
calculated? In other words, the amount the entitlement community would have received if HUD did not employ
the $2 million threshold?
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HUD will not be disclosing any additional information on NSP grantee allocations aside from what has already
been posted to the NSP website. Please be advised that HUD realizes the NSP allocation formula is not perfect
so we have intentionally inflated the State program allocations to address any shortcomings to entitlement
communities. Please contact the Arizona State program for information on NSP funding.

Can you please provide the website address or URL to obtain the Block Group Risk Scores, as mentioned during
the briefing on Friday, September 26th?

Please visit the NSP website. The risk score data you seek can be found by clicking on “NSP Grantee Data
Resources” listed under HUD Resources.

How was Rich Co selected among other counties in the state? How much can I use for admin costs?
Can we use the funds to help prevent foreclosure? Is this is one time deal or will it become an annual
allocation/program?

The NSP general administration costs were set at 10% of the total allocation. Funds are to be used for properties
that have already been foreclosed, but please review the Federal Register Notice for further details on eligible
uses. Lastly, NSP allocations are a one time deal. The funds must be obligated within 18 months from the time
they are received; otherwise they are returned to the U.S. Treasury.

1 Are the data sets, down to the block level, that were gathered by HUD going to be released to the Grantees?
Currently the data sets that are on the web site are to the Place level and only include the potential grantees. Will
the data set be made available for the entire State down to the block level?
2. The Regulations indicate that unless otherwise amended the funds provided have the same regulations as the
CDBG program. In several places there is the term foreclosed property other places mention homes. Question
can the program be used to rehabilitate foreclosed properties that are not residential when those properties uses
will further Neighborhood Stabilization. Fore example a community Grocery store?

1. No, but the data that HUD acquired is available to the Block Group level, which should be sufficient to establish
areas of greatest need. HUD’s estimates of income levels and housing conditions are contained in those data
sets, which are available at:

http://www.huduser.org/publications/commdevl/nsp.html

2. Yes, under Eligible Use E, a grantee may acquire demolished or vacant properties (including vacant
structures) that are not residential for redevelopment. Redevelopment and demolition may include non-residential
structures. As noted in the question, these must generally be located in targeted areas of greatest need and
support the activities in the area that are acquiring, repairing, and selling foreclosed or abandoned houses.
Eligible Uses A, B, and C are limited to homes and residential properties.

I have a grantee, the City of Norman, that would like to see the data on which the formula was calculated - the
foreclosures, abandoned properties, subprime loans. Is there a way we could get such information for the
Oklahoma grantees that would like to see it?

Yes, the information is currently available on the NSP website. See link below.

http://www.huduser.org/publications/commdevl/nsp.html


How can I qualify for this program?
Thank you for your question. Please be advised that NSP grants are only distributed to designated NSP
grantees, which are comprised of state agencies and local governments. Each grantee will have to determine
how best to allocate its NSP grant so long as it complies with the eligible uses described in Title III of the Housing
and Economic Recovery Act of 2008. When NSP grantees submit their action plan amendment to receive their
NSP allocation, they will indicate how they plan to manage the funds. In some cases, NSP grantees may choose
to manage their grants collaboratively with other NSP grantees or contract out to a private organization. HUD will
post contact information for each NSP grantee as soon as the information becomes available.

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We are an entitlement community in Michigan, but we did not receive an NSP allocation. We have foreclosure
needs and need monetary assistance with a rental rehab program that is already in place. Where do we go for
assistance? The County? The State? Can we appeal to anyone for funds?

Thank you for your question. We are instructing all CDBG grantees that did not receive direct NSP allocations to
contact their state program to apply for NSP funding. Also, please visit the NSP website, information on NSP is
being updated daily and many of your questions should be addressed on the website.

Did I hear correctly that data for all localities not receiving a direct allocation can be accessed online (in order for
a State to run numbers to help determine areas of need)? If so, where can this be found?

The following site has several types of data that should help.

http://www.huduser.org/publications/commdevl/nsp.html

I have questions on what some of the columns in the CBG excel spreadsheet mean.

You might check these references found on the NSP website. The first addresses allocation methodology; the
second provides other types of data.

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nspfa_methodology.pdf

http://www.huduser.org/publications/commdevl/nsp.html

Thanks so much for your response. I had looked at this spreadsheet, and wasn't clear on how you use this
information to determine areas of greatest need. Is it the estimated foreclosure/abandonment rise score?
The predicted 18-month underlying problem foreclosure rate? A combination?

I may have sent you one layer too deep into the data site. There are also resources on the HUD formula and on
other alternatives (which I think is where I sent you). The following page has both state and local allocations and
a link called Detailed Methodology (read first) which I hope will answer your questions.


Please provide the OKC field office with NSP information relative to individual municipalities in the State of
Oklahoma whose funding was rolled into the State NSP Grant because their local allocations would have been
less than $2 Million.

There is information on the Data part of the NSP website that discusses relative need in all communities;
http://www.huduser.org/publications/commdevl/nsp.html

However, the Directors have determined that distributing data for the communities that did not receive funding
would be a problem, so it is not available.

I have accessed the data available on the NSP program from the HUD Web site here:
http://www.huduser.org/publications/commdevl/nsp_target.html. There is an error in the boundary file available on
this Web site: http://www.huduser.org/geo/summarylevel.asp. The summary level 090 file for Ramsey County is
incorrect. The block groups are not numbered properly, particularly for the City of Saint Paul.

I have a question about the data. What is the methodology behind the foreclosure risk score and the predicted
foreclosure rate score?

Also, do we need to use the HUD NSP data to show demonstrated need in our application, or can we use our
own data to support the findings of demonstrated need.

We regret the data problem. Is it something you can work around or should we refer it to our data experts?


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The following link takes you to a pdf file explaining the methodology.
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nspfa_methodology.pdf

This link (http://www.huduser.org/publications/commdevl/nsp.html ) takes you to a broader data site which you
have probably already visited, but which may contain some new information.

If neither of these answers your questions, please write back.

Finally, you may use local data. It's likely to be better, but we did not want to require all grantees to develop their
own information on short notice.


Thank you. Is there raw data available for all localities that did not receive an allocation? This would help us run
numbers to better determine the priority areas of need. I can find the data for the state and the localities that did
receive an allocation, but again, what would be helpful would be access to the data for all localities. Is this
available?

HUD has intentionally stayed away from making that information available to avoid creating allocation problems
and arguments about “fair share” and so forth. The data on the website approximates what HUD used, so it
should produce similar results. Additionally, the HUD data was the best we could get on a national basis in 60
days. It is the Department’s hope that locally developed data (through Recorders’ Offices foreclosure filings and
more current Mortgage Bankers Association figures, for example) will be more accurate and meaningful locally.


We are trying to replicate the data that was used by HUD to determine the entitlement jurisdictions’ funding
allocations. However, we have arrived at different numbers for each of the data sources mentioned for our state
and MSAs.

Could you give us the criteria used for selecting total mortgages and high cost mortgages with HMDA data?

For HPI data, did you look at annual prices for price decline or did you compare quarter to quarter? If you look at
annual price data, then the 0.0% that you show for TN is correct, if you compare the June quarter to prior
quarters over eight years, some of our jurisdictions do show a price decline.

For unemployment data, what source did you use? Our June and June Revised numbers do not match your
data.

If there are other data sources that had selection criteria used prior to getting to the raw data presented on the
local data spreadsheet, that information would also be helpful.

Thank you for your question. Please review the data and supporting methodology on the website below.
Unfortunately, HUD will not be providing any additional information on formula calculations aside from the
website listed below.

http://www.huduser.org/publications/commdevl/nsp.html


Homeownership Counseling

The NSP requirements include: The grantee must require each NSP-assisted homebuyer to receive and
complete at least 8 hours of homebuyer counseling from a HUD-approved housing counseling agency before
obtaining a mortgage loan. (p. 17)

However, that term is undefined and I would appreciate some clarification as to its meaning. In MN the
homeownership assistance programs clearly distinguish between “education programs” and “counseling.” (I
believe this distinction is nation-wide.) For example, we have a statewide curriculum for a program entitled,
“HOME STRETCH.” Home Stretch is a homebuyer education program recognized in Minnesota and around the

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country as a proven tool to prepare homebuyers to be successful homeowners. This 9 hour group workshop
covers

    •   The steps to becoming a homeowner
    •   How to prepare financially for homeownership]
    •   What you can afford to pay for a home
    •   The importance of credit and how it impacts homeownership
    •   How to choose the right mortgage loan and get preapproved
    •   Ways to shop for a home
    •   What to do when you are ready to make an offer
    •   The importance of having a home inspection
    •   How to prepare for loan closing and what happens at closing
    •   The responsibilities of homeownership

Only after a household has attended this group training would they be eligible for one on one counseling. The
counseling is household specific session. In it the counseling deals with that particular households’ credit,
resources, needs, etc.

Does the NSP’s meaning of “counseling” encompass the “training” I outlined above? Or does the NSP’s meaning
of counseling generally mean one on one sessions?

Talked this housing counseling over with Steve and we do not see any point in getting hung up on semantics
(education vs counseling) if the program is thorough and well operated. There is a final regulation on HUD’s
Housing Counseling Program. While a lot of it deals with getting approval and funding as a counseling agency,
 Section 214.300 describes approved activities (and also elides education and counseling). As usual, MN’s
program appears to exceed these standards. You can find it at this site.

http://www.hud.gov/offices/hsg/sfh/hcc/final.pdf

These regs also allow flexibility on service delivery (by phone if mutually agreed) and, in my skimming of it, seem
to say that you need an individual plan, but that the training itself can be done in groups for the most part. Steve
said someone from MHFA was at the Summit last week and asked if people who had already received housing
counseling had to go through it again; Steve said no. On the other hand, in response to a second question,
someone who previously owned a home but did not go through counseling should do so.

The NSP program requires all prospective homebuyers to receive 8 hours of housing counseling. Can NSP
funds be used to pay for this counseling? Traditionally, in our community, housing counseling is funded with
CDBG and other funds which all require beneficiaries to have incomes below 80% of the area median. The NSP
program allows beneficiaries to have incomes up to 120% of the area median. This regulatory change creates a
gap- and the question arises as to how do we pay for the counseling for households between 80 and 120% of
area median income.

Good question. Fortunately, the NSP regulations allow this as an eligible activity, as long as the counselees are
prospective purchasers or tenants of redeveloped properties. See the section on redevelopment in the regs,
under the “correlated eligible activities from CDBG”. If you have others requiring counseling, the legislation made
substantial funds available to the Neighborhood Reinvestment Corporation (NeighborWorks). They might have
some operations in Allentown. See http://www.nw.org/network/home.asp


I just got a call referred to me from the CPD Director here in Atlanta. The call was from the CD Director of Cobb
County (one of the largest counties in the Atlanta MSA). He explained that 1 or 2% of the $3.9 billion $ for the
NSP was set aside for housing counseling and he wanted to know the process for applying for the HC funds.

Counseling is an eligible use of NSP funds (under eligibility factor “B” and “E”)*. Each NSP assisted homebuyer
must receive and complete at least 8 hours of homebuyer counseling before obtaining a mortgage loan. There is
no separate application process to use NSP monies for this purpose.

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    •   B is “purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed
        upon, in order to sell, rent, or redevelop such homes and properties.
    •   E is “redevelop demolished or vacant properties”

I suspect the inquiry may relate to the $180,000,000 in funds pursuant to Section 2401 of HERA which is not the
section for NSP. We are not administering this part of the HERA law. The funds, $180,000,000 appear to be a
direct appropriation to Neighborhood Reinvestment Corporation and appear to focus on foreclosure prevention
activities, which NSP does not.


Also as I mentioned to you over the phone we have gotten a number of questions from agencies on the
requirement for ” 8 hours of homebuyer counseling.” In the industry, the term “housing counseling” refers
collectively to the organizations offering either group sessions or one-on-one counseling.

Technically sessions offered to groups in classes or workshops are referred to as housing “education,” while the
term housing “counseling” is reserved for sessions held with individuals. The hours for a class or workshop is
typically 8 hours which may be where the number comes from in your regulation. However the requirement is
confusing because the industry typically does not prescribe a number of hours to one-on-one counseling since it
is so individualized.

So my question is:

    •   Did you all mean to require 8 hours of housing counseling education?
    •   What will a client need to prove they have fulfilled this requirement? Will the certificate from the
        workshop suffice?
    •   If so can an official clarification be issued? Can the clarification not list the number of hours since HUD’s
        housing counseling program does not prescribe number of hours for a workshop or a one-on-one
        session?
    •   If an official clarification cannot be issue, what should we tell the HUD approved agencies and the
        participating jurisdictions that are calling us?

    •   The 8 hours can be classroom style, individual (one on one) or a combination of both.
    •   Yes, the certificate is fine.
    •   We are posting the common questions and answers on our website.
    •   See above.


Under the NSP rules, a grantee must require each NSP-assisted homebuyer to receive and complete at least 8
hours of homebuyer counseling from a HUD-approved housing counseling agency before obtaining a mortgage
loan. In the State of Michigan, the Michigan State Housing Development Authority (MSHDA) has a program to
train and certify homebuyer counseling agencies. It is my understanding that each counselor participates in a 6
day training, with a requirement for annual refresher. The program uses a specific curriculum provided by
MSHDA. The current MSHDA curriculum provides 2-6 hours of training to each homebuyer depending on the
needs of the individual. One of the nonprofit developers the City works with is a MSHDA certified housing
counseling agency, but is not HUD-approved. They have asked if :
1. The MSHDA certification could allow them to be considered "HUD-approved" for meeting the NSP
requirements for homebuyer counseling, and
2. If the MSHDA certification is acceptable, if the 6 hour MSHDA training curriculum be substituted for the 8
hours specified in the NSP rules.
The potential exists to expand the existing 6 hour MSHDA curriculum to 8 hours.

The Notice specifies eight hours of counseling, so HUD cannot relieve you of that requirement. However, we will
accept a state-run program that meets the standards found at: http://www.hud.gov/offices/hsg/sfh/hcc/final.pdf
These regs offer some flexibility in how the program is delivered; hopefully these will work for you.




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Land Banks

Under NSP, specifically eligible use (C) Establish land banks …, is there a requirement that the owner (land
bank) has to be a legally established land bank?
In this case, the Garland Housing Finance Corporation (GHFC) currently temporarily holds vacant properties that
the City of Garland intends to redevelop at a later date. The GHFC is not legally recognized under State of
Texas law as a land bank. For NSP purposes, could they be considered a land bank?

No, the NSP Notice does not have specific requirements for the legal structure of land banks. See the following
excerpt from the Definitions section of the Notice. At the Housing Summit here a few weeks ago, there was a
great presentation by the Genesee County (Flint), Michigan Treasurer. He operates their public land bank, which
has been very successful in dealing with tax foreclosures. I specifically asked if government agencies were better
than non-profits. He said that theirs started as a n-p, but is now a public entity. He believes that is a stronger
mechanism, but said they needed special legislation from the state, which NSP grantees probably do not have
time for. So, long story short, I think we are expecting them to do the best they can for now and have provided a
pretty open rule.


As part of land banking can we purchase abandoned or foreclosed residential property (whether vacant land or
home)? Or is it just foreclosed upon homes/residential structures?
Just foreclosed.

Response:
Page 8 states that a land bank is "established, at least in part, to assemble, temporarily manage, and dispose of
Vacant Land for the purpose of stabilizing…" The definition goes on to state that "It will purchase properties that
have been abandoned or foreclosed upon"        But, in the table on page 32 it states "Establish land banks for
homes that have been foreclosed upon."

Stick with the more limited definition in eligibility. The land bank definition was a more general description, but it
does sound a little confusing.

What about the purchase of vacant land? Vacant land that is located in an area of foreclosed homes, but either
is currently owned by the jurisdiction or a CDC or private individual (that would sell for the discounted rate
required by the NSP), and that vacant land would enhance the jurisdiction's ability to redevelop an area of
foreclosed properties. Can these vacant lots be included in a land bank?

You can purchase any kind of vacant land under E (res, commercial). It must be redeveloped, so it cannot be
land banked. Note that ONLY foreclosed property is subject to the purchase discount.


Under land banking, can I maintain the property with NSP funds. The regulations don't actually state NSP funds
can be used for holding costs. However, it does state that the jurisdiction can not recover the holding costs when
the property is sold. Can we interpret this as meaning we can use NSP funds for holding costs?

Yes, cross-referencing to CDBG regs on disposition, this is fine. But then you cannot tack those costs on top of
the sales price.


May I ask your help in reconciling what appears to be conflicting information regarding the Land Bank activity and
the use of NSP funds for acquisition as well as for "maintaining" property not owned by the Land Bank? The
Notice, I, A. Definitions, "Land Bank" says: "If the land bank is a governmental entity, it may also maintain
abandoned or foreclosed property that it does not own, provided it charges the owner…or places a lien…for the
full cost…" Does that mean we can use NSP funds to pay for such maintenance, assuming we can recover it or
lien for it? In the "Guide to N…S…P.. Eligible Uses", part II. "Eligible Uses", section 3. Land Banks, it says under
"Land Bank Uses": "Grantees may pursue other Land Bank activities, however, NSP funds may only be used for
acquisition". Many thanks for your help!


                                                                                                         Page 66 of 99
It’s not clear where that statement in the Guide originated. However, you can do maintenance. The Correlated
CDBG activities for Land Banks include Demolition. In the CDBG regs, Demolition includes property
maintenance. As you observed, you may maintain property that the governmental entity does not own if you
charge for it.

Let me point out another area that may cause confusion. Under J, Sale of Homes, the Notice says:

2. In determining the sales price limitation, HUD will not consider the costs of boarding up, lawn mowing, simply
maintaining the property in a static condition, or, in the absence of NSP-assisted rehabilitation or redevelopment
of the property, the costs of completing a sales transaction or other disposition to be redevelopment or
rehabilitation costs. These costs may not be included by the grantee in the determination of the sales price for an
NSP-assisted property.

This does not prohibit doing maintenance. It assumes that NSP will pay for it and prohibits the grantee from
adding those costs to the sales price.

Can NSP funds be used to board up, clean or fence off open, abandoned properties to prevent further vandalism
and deterioration or to address dangerous public health and safety conditions in an area which is the focus of
concentrated NSP and CDBG funded stabilization programs, even if NSP funds may not ultimately be used to
acquire or rehab the properties?

Regarding the second question, the only way that NSP supports board-up and other maintenance of non-NSP
properties is when you have a government-operated land bank. The excerpt below from the NSP Notice, under
definitions, lays this out. Even in these circumstances, the city would have to bill the owner or place a lien to
cover the costs. I realize that this is a little tight, but we have been trying to hew closely to the legislation.

Land bank. A land bank is a governmental or nongovernmental nonprofit entity established, at least in part, to
assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and
encouraging re-use or redevelopment of urban property. For the purposes of the NSP program, a land bank will
operate in a specific, defined geographic area. It will purchase properties that have been abandoned or
foreclosed upon and maintain, assemble, facilitate redevelopment of, market, and dispose of the land-banked
properties. If the land bank is a governmental entity, it may also maintain abandoned or foreclosed property that it
does not own, provided it charges the owner of the property the full cost of the service or places a lien on the
property for the full cost of the service.

If we acquire a property and demo the structure, then place it in our land bank for future redevelopment, and a
developer comes along and wants to buy it to build a new house on the property, is the developer bound by NSP
rules or can he sell to anyone regardless of income level?
This is critical to our plan design as we hope that with acquisition/demo / land bank being an eligible activity, we
have satisfied the program requirements and in the future, any activity would be released from NSP rules. I
believe it will be difficult to get developers interested in redeveloping a property that has limitations on it.

In general, the NSP Program requires that the end user is an LMMI person. In your scenario, that would be the
purchaser of the new home on redeveloped land bank land. However, under certain circumstances, you may be
able to undertake this activity. I am including relevant sections of the NSP Notice and have put key parts in bold.

The underlying legislative requirement is that all NSP activities must benefit LMMI. There is no slum and blight
prevention national objective which would normally fit this situation. While there is an area benefit category, it
generally applies to something like a park that you might build in an LMMI target area, whose benefits cannot be
confined to specific individuals.

The Notice then addresses land banks and acknowledges that establishing benefit can be difficult. However, as
shown in the second bold section, a land bank that is in an area of great need and is supported by other activities
designed to improve the area could satisfy the benefit standard regardless of the income of the ultimate
purchaser of the property. If your program will provide these comprehensive revitalization activities in support of
the land bank, you could sell the land without respect to the income of the purchaser.


                                                                                                      Page 67 of 99
25% Low-Income Set-Aside

Can the 25% grant use requirement to 50% of median income limitation be addressed by simply constructing
rental housing for individual households at 50% or below of the median income on vacant land.
    YES

Does the grantee/subrecipient have to purchase and redevelop:

            a) abandon homes, or
            b) foreclosed homes, or
            c) residential property?
    NO

Is residential property defined as multifamily complexes?
     It can include MF.

Is residential property defined as any property zones residential including vacant land?
     YES

Is “purchase and redevelopment” a combined requirement or can a grantee redevelop without purchasing the
property and vice versa?
     These can be separate.



Can a community meet the 50% AMI requirement for acquiring and demolishing vacant properties through a LM
area activity: ex: by using a demolished house for a small park in a very poor area?

No. The 50% AMI piece must be satisfied by providing direct housing benefit to qualified individuals, unlike the
rest of the funds. Both the legislation and the regs specify that the 25% going to people below 50% of AMI is for
housing.

Targeting the funds. How much? 50%60% our cal? Please define

Not exactly sure what you mean. Here are some facts:

100% of the NSP funds must benefit LMMI (up to 120% of median); there is no slum and blight or urgent need
category.

25%, by dollar amount, of the NSP grant must be used as follows:




The only real targeting is to areas of greatest need, as defined by foreclosed, defaulted, and subprime loan
houses. There is information about this on the webpage I sent earlier on eligible uses. The NSP website has
some spreadsheets that will help communities identify those areas.

                                                                                                    Page 68 of 99
One of the requirements is that 25% of the NSP funds be used for "purchase and redevelopment of foreclosed or
abandoned properties". Does that mean the 25% requires us to BUY foreclosed or abandoned properties for re-
sale or is it possible that we create a First Time Homebuyer/Down Payment Assistance Strategy to subsidize
buyers with THEIR purchase of a foreclosed or abandoned property??????? I am a municipality in Broward
County, Florida and several of the local municipalities are interpreting this in different ways.

The attached Notice also describes this in more detail.

The point of the section you noted is as follows:




The important element here is that one quarter of the grant (by dollar amount) must benefit people below 50% of
area median income. Most communities will probably have to get involved with some type of rental program,
since people below 50% of median generally cannot buy a house. You can do a First Time Buyer or other
program with the other 75% of the funds, which can benefit people up to 120% of median (and therefore more
likely able to afford a home).

The training session will probably expand on what you can do. Hope this helps.


Q: Is it true that a NSP recipient jurisdiction may use NSP funds to purchase residential property to be used as a
homeless shelter to provide transitional or temporary housing? Is it also true that these funds used for this activity
will not count towards the 25% set-aside for very low income households?

Q2: Is it true that only residential properties are eligible to be purchased and rehabilitated under NSP?

You may acquire residential property under Eligible Use B or non-residential property (Vacant land or vacant
structures) under Eligible Use E.

Under E, redevelopment, you could construct such facilities. Most shelters are not considered housing, since they
are short term. You could assist with their construction as public facilities, but this would not count toward the
25% set-aside.

If the use is permanent housing (transitional housing), you could construct it as housing. In this case, if you can
document that the residents are below 50% of median (as is very likely), then it would count toward the set-aside.

I apologize for the delay, but we are still working out the policies on some issues. I hope this answers your
question.

Second A:
This subject is confusing a lot of people, including us!

In short, no. Under Eligible Use B, that is all you can acquire. But under E, Redevelopment, you can acquire just
about any type of property, as long as it is vacant land or vacant structures.


                                                                                                       Page 69 of 99
Has a determination been made as to whether transitional housing would be considered as eligible housing to
meet the 25% of 50% of median income requirement?

Under E, redevelopment, grantees can construct such facilities. Most shelters are not considered housing, since
they are short term. They could assist with their construction as public facilities, but this would not count toward
the 25% set-aside. Transitional housing is not included in the CDBG public facilities definition.

If the use is permanent housing, they could construct it as housing. In this case, if they can document that the
residents are below 50% of median (as is likely), then it would count toward the set-aside.


The HERA legislation requires that 25% of the NSP funds shall be used for the purchase and redevelopment of
residential properties that will be used to house individuals whose incomes do not exceed 50% of area median
income. A grantee would like to purchase residential structures that will eventually be redeveloped by Habitat for
Humanity or similar organizations, but expects that the redevelopment or rehabilitation will not take place for
several years. Can the grantee assign those units to the subrecipient without being certain of the date of
redevelopment and still count them toward the 25% low-income set-aside?

No. The income targeting requirement is based on actual occupancy. The units could be land banked for up to
ten years. However, land banking is an area benefit activity (LMMA) that would not satisfy the 25% set-aside,
which must meet the housing national objective. HUD will determine at grant closeout whether the 25% below
50% requirement has been met. If the houses are not occupied by that time, they will not count toward any
housing goal.

We ask clarification about the requirement that 25% of NSP funds be used to house households with incomes
less than 50% MI.

We would like to do new construction on vacant lots (group home) for individuals with special needs. It appears
that the regulations suggest purchase/redevelopment of foreclosed homes for those at 50% MI.

Here’s what the legislation says. It includes activities on “abandoned or foreclosed upon homes OR residential
properties” which could be vacant land. If you acquire foreclosed vacant land under E, Redevelopment, then you
may undertake new construction for this income group (or up to 120% AMI.)


NSP requires that not less than 25% of the funds made available shall be used for the redevelopment of housing
for individuals or families whose incomes do not exceed 50% of area median income. Is the basis for
determining the dollar amount for this income targeting requirement based on the full grant amount or the grant
amount less the 10% general admin costs?

The 25% comes off the top, before the 10% administrative allowance


HERA says, roughly, that 25% of the appropriation must be spent on acquisition/development projects that
benefit very low income families, i.e., those under 50% AMI. HERA is silent on admin costs, which were added at
10% in the Notice.
Does this rule apply after the admin costs are deducted, as in CDBG? In a $1,000,000 NSP, must $250,000 be
spent on the <25% AMI,; or may it only be 25% of $900,000, or $225,000?

The 25% calculation comes first, then the 10%, so it’s $250,000 in your example.


The city has an inventory of vacant properties, it would like to donate some of the lots that are located in the
areas with high foreclosure risk scores to our local Habitat to construct new homes that would be sold to families
with incomes<= 50% of median income.

1. Can we allocate NSP funds to Habitat for the construction of homes on these lots under eligible use E?

                                                                                                      Page 70 of 99
2. Would this count toward 25% of NSP funds that have to be made available for housing for individuals whose
incomes do not exceed 50 percent of median income?

1. Yes, that’s the only Eligible Use, but is perfect for this purpose. Your activity would be disposition of vacant
property, which might only involve some overhead expenses if you are donating them.
2. Yes

If a foreclosed or abandoned property is acquired with non-NSP funds, but the property is rehabilitated with NSP
funds, would the 5% acquisition discount requirements still apply?

The purchase discount requirement applies to properties acquired with NSP funds. If the property is not acquired
with NSP funds the discount does not apply. Properties rehabilitated with NSP funds, but not acquired with NSP
funds must only follow the other requirements stated in the NSP Notice.


NSP Information Sessions

Have the NSP regulations been published yet in the Federal Register? If so, is it possible to get an electronic
copy? If not, do you know when they will be published?

Also, when will information on the 10/10 training in Los Angeles be available?

Thank you for your question. The NSP Federal Register Notice is currently available on the NSP website. It
should be available on the Federal Register’s website later this week.

Please check the NSP website for updates.

HUD plans to host a national housing summit in Washington, DC on October 7-8, as well as a series of regional
conferences to explain the details of this new program to governors, mayors, county executives and other State
and local leaders. Has a schedule of the regional conferences and locations been developed and where / when
can we get the schedule?

At this point all I can tell you is that a regional NSP information session has been scheduled for October 14th in
Columbus, Ohio at the Hilton Polaris Hotel. Further details on registering for this session and other sessions will
be posted on the website later today. Please check the website for updates.

Will there be local training in the DFW area on this program?

To date, only 3 NSP information sessions have been scheduled
Los Angeles, CA---Oct, 10th
Columbus, OH---Oct. 14th
Orlando, FL---Oct. 16th

Additional information will be posted on the NSP website later today.

How can I apply for the NSP grants?

NSP grant submission materials are now available on the NSP website.


We are interested in the option of using CDBG funds toward Foreclosure Assistance. Your website indicated that
regional conferences will be upcoming to explain this new program. Is there anything we can/should do now, to
get the process started?

Thank you for your question. Please visit the NSP website for NSP funding details. We have also posted a
webcast training session for additional support.

                                                                                                        Page 71 of 99
Please send any available information. Thank you.

We are using the NSP website as the central source of information for the program. You can get the regulations,
questions and answers, and information on model programs (under Foreclosure Recovery Strategies), among
other useful information (we hope). We are scrambling to keep it current and are adding information all the time,
so keep checking back in. If there’s still something you cannot find, write back and let us know.

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

We have a grantee (Gwinnett County, GA) who cannot get access to the NSP Training webcast. It is currently
set up for viewing in Real Player and their system blocks it. Is it possible for them to get in Windows Media
Player? Or is there some way for them to make it default to play in Windows Media Player rather than Real
Player?

Our web expert is not here right now. Sometimes they have to disable the pop-up blocker or other filter to get it
working. When David returns, he may be able to provide other advice.

When may states expect the separate guidance that will provide a simplified "crosswalk" of NSP and state CDBG
requirements for state grantee administrators.

The answer is that we do not plan to provide any special training for States, and are not planning any specialized
State guidance. That being said we may issue State oriented advice from time-to-time as circumstances require.


I am not a grantee but I just watched your posted webcast. It was very informative. Are the slides the presenters
used available for download? Thank you,

It’s encouraging to know that the webcast was helpful. We hope to get the slides up soon; I don’t think we have
them yet. Everything and everyone is moving pretty fast. Please check back on the website for the frequent
updates.

I'm very interested in taking part in the purchase and rehabilitation section of the neighborhood stabilization
program. Unfortunately thus far I have not been able to get through to anyone at my local area HUD office. Would
it be possible to speak to someone from your office that can further guide me though the application process?

The best place for information on the Neighborhood Stabilization Program is HUD’s website.

http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

This describes the program and how it will operate. In general, grants will go to local governments and states
(see list at end of attached Notice). If you are interested in getting involved as a builder or developer, you would
want to connect with the unit of government in your area. If your city does not have a direct grant, it may be
applying to the state. Either way, a good place to start would be the community development and/or housing
agency in your local government. If you work in more than one jurisdiction, it may be necessary to contact each
one.

Communities and states are using these grants primarily to acquire, possibly rehab, and sell foreclosed houses.
How that happens will vary from place to place, so it’s hard to give you very specific advice. Many cities use
contractors for rehab, but some do not. Those decisions are made locally.

Program Administration

Administrative percentage of funding - same as CDBG (20%)?

Thank you for your question. In terms of program administration for NSP, no it will not be the same as CDBG.
The Federal Register Notice is now posted on the website. As stated on p. 31 of the Notice, NSP general
planning and administration will be capped at 10%.

                                                                                                       Page 72 of 99
Is there an administrative set aside for the NSP? Or will administration of the NSP program come out of the
CDBG-mandated 20% administrative cap?

The NSP general administration cap has been set at 10% of the total NSP allocation. Please see the Federal
Register Notice for further details.

I’m on board with the LMMI housing activity. The low mod benefit area would come into play only if you were not
reselling the home for housing e.g. conversion to a neighborhood park. Then the property acquired better have
been in a LMMI census track or you won’t meet a national objective with the activity.

Ok here’s another for you. In the breakdown of funding, 10% for Admin, 25% on HH <50% AMI, the rest to
benefit HH<120% AMI.

Doing the math, does the 10% come off the top, then 25% of the remaining funds (90% of total) for <50% AMI or
is the 25% off the total?

Example: $10,000,000 total. Either way, $1,000,000 is allowable for admin. Is the 25% calculation $10,000,000
- $1,000,000 (admin) = $9,000,000 x 25% = $2,250,000 ~~~ or ~~~~ $10,000,000 x 25% = $2,500,000.

Good morning. Here is what the law says, so HUD has directed that the 25% is based on the total allocation, not
the 90% left after admin.




A current state CDBG grantee (OECDD) will NOT administer the NSP rather another state agency (OHCS) will
administer the program. Is a letter from the Governor's office sufficient to transfer the NSP funds to another state
agency, or is a memo of understanding required between the two agencies, similar to the Urban County
Qualification guidance found in Notice CPD-07-03?

Sorry it’s taken awhile to respond. The floodgates have opened up! It is up to the Governor to decide who shall
administer the program, so all that is needed is the letter from the Governor specifying which agency will
administer the NSP.


1. Are funds for administration required to be committed or obligated within 18 months? How do we handle
administrative needs after 18 months if needed (disposition of property purchased for land banking)? Can non-
profits be paid for administration of eligible activities as subrecipients or should that be developers fee instead?
2. NSP funds can be used for Redevelopment. What defines redevelopment of vacant and blighted properties?
Can NSP funds be used to improve (redevelop) existing substandard dilapidated vacant land that is County
owned?
Regarding administrative costs, general admin is okay beyond the 18 months as long as it’s within the overall
10% limit. Project delivery costs (project admin) is also okay as long as it supports activities for which funds have
been committed in the 18 month window. Non-profits and other subrecipients will usually be doing activity
delivery and the same rules would apply. If you want to negotiate a fee structure instead, that’s up to you, but you
don’t have to do it that way to avoid running out of admin funds.
Redevelopment is pretty open-ended. You could use it to redevelop vacant county land. I think what we’ll be
looking for is some sort of relationship to the rest of the program and some sort of internal coherence on the
redeveloped property. For example, you might want to build some sidewalks or run some utilities to a vacant site
where you want to build new rental housing. Those would be fine. A small park across the street would probably
also be fine. A park four blocks away might be a problem unless it was the only one in a big area and that was
the only place you could build it.

                                                                                                      Page 73 of 99
Q: can NSP funds be used for planning grants (i.e. similar to that permitted under the state and small cities cdbg
program)?
Can such cost be considered eligible under planning and administration if not eligible as a stand alone activity?

The question is asked because many localities do not have the resources or capability necessary to run a
successful program.

While planning is not specifically eligible, the activities that you describe could be done under the 10%
administrative allowance. For planning a specific project, say redevelopment of a target area, to identify specific
structures to be acquired, design a little park, etc., this can be done as an activity delivery cost (Project
administration) as part of the activities themselves.

If you are talking about a state program, I would want to get some input from that office, so let me know.


Are the data sets, down to the block level, that were gathered by HUD going to be released to grantees for the
entire state?

No, but the data that HUD acquired is available to the Block Group level, which should be sufficient to establish
areas of greatest need. HUD’s estimates of income levels and housing conditions are contained in those data
sets, which are available at: http://www.huduser.org/publications/commdevl/nsp.html


Are state grantees limited to retaining 3% of the grant's overall 10% allowable administration costs as under
normal CDBG regulations? What if the state is implementing a program directly under the NSP, would this allow
for a higher admin amount to be retained by the State?

No, state grantees are not limited in using program admin. States can use the maximum 10% allowable for
program admin. whether they are implementing the program directly or not.


#1. Is time we have been spending (prior to signing a contract) attending workshops and working on developing
a plan, researching lenders, etc. reimbursable from the Administrative portion of the NSP funding even though it
is not associated with a particular property?
#2. If the City pays for an appraisal or other expenses for a property that it does not end up buying (ex. the bank
will not negotiate), is that expense considered part of Administration portion or the “other” portion of the NSP
funding?

Yes again on both questions. Section II C. of the NSP notice allows for “pre-award costs” for planning and
administration, beginning Sept. 29, the effective date of the Notice. On #2, those costs would be general
administration (part of the 10%) if done before grant award. After receiving the grant, something that is project-
based is considered an activity delivery cost, chargeable to the project budget. In either event, HUD recognizes
that not all purchases will close and still considers the cost eligible. Only if some huge percentage of your activity
delivery costs were allocated to uncompleted projects would it be a problem. In that case, we’d probably be more
concerned with administrative capacity or program design.


I just glanced over the draft copy of the State of VT which they have on their website. I looked over the template
and checklist on the NSP web site and nowhere did I see a reference to the 10% admin that NSP grantees are
entitled too. The State did not list the $1,960,000 in the draft and the way that I understand the process is that
needs to be included in their plan.

Our State and Small Cities Division will give you some feedback. This seems like a case in which calling the
grantee would be helpful in getting a better understanding of the state’s intentions. The Notice does require that
they list activities. Since the NSP Eligible Uses list does not include the admin category, maybe there is a
misunderstanding on their part


                                                                                                       Page 74 of 99
Can a grantee structure a project using NSP, HUD vouchers or HUD TBRA?

So far, we have been open to just about every combination that I have heard about. One possible problem down
the line is that the NSP, CDBG, and HOME programs treat income and sale proceeds differently. We are trying to
get our policies straight but I personally am not clear on how this will work. I’m sure we’ll get it figured out and do
not think it affects any program design decisions, but it could affect implementation.


10% of the NSP award may be used for administration. NSP funds must be obligated within 18 months and
expended within 4 years. Can 10% of the NSP award be allocated to administration and be used over 4 years, or
does it all have to be expended within 18 months?

Can 10% of any program income be used for administration for the entire term of any resale or rent restrictions?
In other words, if we have a 20 year rent restriction, can we continue to use NSP funds in years 6 through 20 to
monitor compliance with the rent restriction?

Yes, the administration money can be used over 4 years so long as the timing correlates with assisted activities
that extend over 4 years.

Yes, 10% of program income can be used for program administration. Program income for Uses B and E that
comes back to the county on or after July 30, 2013 can only be kept with HUD approval.

Program Income

One of my grantees who attended the conference in LA said that the answer they heard to a question about
program income received after 2013 was confusing. It had to do with the fact that if HUD gave the approval to
reuse the money beyond the 2013 date, that some of the PI would still have to be returned. That made no sense
to me, but I didn’t hear that at the conference. Does it make any sense to you or did they misunderstand the
response?

On the second question, we have experienced a lot of confusion. Program income from Purchase/rehab and
Demolition must be returned to HUD and then to the Treasury, after 2013. The complexity enters if there are
“profits”, for example on a MF project. (There can be none on SF, because they must be sold at or below cost.)
The regs give an example. If the grantee buys a foreclosed apartment building for $100,000, then puts $100,000
into rehab, it has spent $200K of NSP money. If it sells the building after 2013 for $200K, all that money is
program income and must come back to HUD. If they sell it for $225K, the $25,000 profit can be retained IF HUD
authorizes it. See Part N of the Notice.

This applies to either public or private “profit”, which has caused some doubts about what the incentive would be
for a private developer. The incentive is that they can charge reasonable developer’s fees; maybe not as
interesting as usual, but better than the nothing they are getting these days.

Further complicating matters, the Notice allows grantees to retain PI from activities A (financing mechanisms), C
(land banking), and E (redevelopment) as long as it is used for NSP eligible activities.

As we were discussing the PI question here, we began to debate the language in the reg in Section N. The reg
states that after 2013, PI comes back to HUD. The inference here is that it cannot be reused by the grantee and
that HUD cannot give its blessing to the grantee to continue to reuse the money. The only time income can be
reused after 2013 is when HUD grants permission to use any profit over and above PI in a multi family project.
Further, income from the sale of a single family home after 2013 must be returned to HUD and again cannot be
reused by the grantee. If you can confirm this for clarification it would be very helpful, as some of us as well as
the grantees are reading it differently.

That is correct.



                                                                                                        Page 75 of 99
If I understand your question correctly, there is a limitation.

Section II N of the NSP Notice generally requires profits or income from resale of multifamily properties to be
returned to the unit of government for use in other projects. There should be no profits from the sale of single
family properties, since they must be sold at or below cost. The Notice does allow for reasonable developer’s
fees. The full notice is attached for reference. I hope this answers your question

What if we do not plan to sell the single family homes that we are renting. We would commit to a long term rental
to lmmi persons. I understand the requirements as to sale but rental is unclear to me.

You can rent long term. NET operating income would be Program Income, subject to return. However, you can
pay all normal management and maintenance expenses, replacement reserves, etc. from Gross Rents.


Sorry to pester you, but I guess that’s the nature of what we created. I left a voice message on your telephone
earlier, but I’ll try to ask my question this way. The below paragraph which was part of your last response to me
on program income. I just need to ask to clarify whether the reg which includes this statement refers to income
generated before or after July 2013, or does it have to comply with the same requirement as the others meaning
that after July 2013, the income must be returned to HUD? It activities generating PI from this paragraph
reference do not have to be returned to HUD, how then do we explain the commonality of E to both sections of
the regs? Isn’t either one way or the other, or is it dependent on the entity generating the income?

Further complicating matters, the Notice allows grantees to retain PI from activities A (financing mechanisms), C
(land banking), and E (redevelopment) as long as it is used for NSP eligible activities.

YES, as we guessed, Paragraph N 2 should say “A, B and D”, not A, B, and E”. A typo with big potential for
confusion.


We purchase an abandoned foreclosed home for $50,000. Rehab costs an additional $35,000 bringing the total
developed costs to $85,000. We then turn around and sell the rehabbed property to a family for $75,000, or
$10,000 less than the TDC.
Realizing the numbers above are pulled out of a hat with no reference to reality, a couple of questions come to
mind:
1) If the buyer sells the home in 4 years for $85,000, would they be obligated to return the $10,000 increase in
sale price as PI? Or could it be written as a development subsidy similar to HOME?
2) Does it make a difference whether the entitlement community sells directly to the ultimate buyer or should title
go to a developer , non-profit or for-profit, who would subsequently sell to the family? Would it affect the amount
of PI available for reinvestment?
3) Has HUD or Congress established an affordability term? If so, what is it based on?

Question 1.
The NSP Notice says:
3. a. In its NSP action plan substantial amendment, a grantee will define ‘‘affordable rents’’ and the continued
affordability standards and enforcement mechanisms that it will apply for each (or all) of its NSP activities. HUD
will consider any grantee adopting the HOME program standards at 24 CFR 92.252(a), (c), (e), and (f), and
92.254 to be in minimal compliance with this standard and expects any other standards proposed and applied by
a grantee to be enforceable and longer in duration. (Note that HERA’s continued affordability standard is longer
than that required of subrecipients and participating units of general local government under 24 CFR 570.503 and
570.501(b).
PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE MODIFIED.
                                                                                                     Page 76 of 99
Under 92.254, the grantee establishes either resale or recapture restrictions to ensure continued affordability
of homeownership housing. (92.252 covers rental housing.)
Question 2. No, the community can make the arrangement that best meets its needs (consistent with the
regulations, of course). Ultimately, for the first 5 years, the Program Income will return to the grantee, so it should
have no effect.
Question 3. See #1. The grantee must define affordability in its plan amendment.


If the Grantee purchases property with NSP funding, then sells the property to a qualified family, carries the first
mortgage, places a covenant on the property, then the family decides to sell the home, and the sells price
exceeds the original purchase, does the family get a profit or does ALL money earned on the property have to be
returned to the Treasurer.

The Notice says:
3. a. In its NSP action plan substantial amendment, a grantee will define ‘‘affordable rents’’ and the continued
affordability standards and enforcement mechanisms that it will apply for each (or all) of its NSP activities. HUD
will consider any grantee adopting the HOME program standards at 24 CFR 92.252(a), (c), (e), and (f), and
92.254 to be in minimal compliance with this standard and expects any other standards proposed and applied by
a grantee to be enforceable and longer in duration. (Note that HERA’s continued affordability standard is longer
than that required of subrecipients and participating units of general local government under 24 CFR 570.503 and
570.501(b).
Under 92.254, the grantee establishes either resale or recapture restrictions to ensure continued affordability
of homeownership housing. (92.252 covers rental housing.) Sec 92.254 of the HOME regs is attached. It
contains a table specifying different periods during which funds must be recaptured by the grantee and treated as
Program Income. As long as your standards are at least that stringent, you are fine.

Thank you for the response, however. 24 CFR 570-503 speaks to “subrecipient”, in our case, we are not
considering utilizing a subrecipient to carry out the program.

The question still remains: If we sell a home, we will place a covenant on the property, however it does not keep
the borrower from receiving a profit, if they sell the home during the 30 year period, even with equity share.

I also need clarification about the 5 uses, A- E

Information has been flying around that once the property is sold to a homebuyer that they must pay off the loan
in 5 years. Can you provide more detail, than the HERA Act and the quick guide?

570.503 is only mentioned in passing. The HOME resale and recapture provisions that I cited apply, unless you
specify a higher standard. (See Continued Affordability section on page 58334 of the attached Notice).

The 5 year repayment rumor is not true. Maybe someone thought that the fact that program income has to be
returned after 5 years affected the mortgage; that is not true. Or maybe somebody got confused about the HOME
requirements that require minimum periods of affordability and recapture of the subsidy described in the rule I
sent previously.
I have attached the Notice. The following table of NSP-Eligible uses is on page 58338. We just posted a bunch of
new FAQs on our website, so please check there is you have problems, or write back.


1.) Are NSP funds allowed to be used for commercial demolition providing it is in a 120% LMMI census tract and
is in fact, a blighted structure?

YES.

2.) In regards to program income: I understand that any program income received after July 30, 2013 must be
returned to HUD. However, let’s say we have $300,000 in program income returned on July 15th, 2013. If that is
not spent by the July 30 deadline, would that $300,000 have to be returned to HUD as well or are we allowed to
retain it to be spent on future NSP eligible projects?

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Grantees may retain any Program Income received before July 30, 2013, continuing to use it for NSP-eligible
uses. Note that, as of today, only Program Income from activities B (Acquisition and rehab of residential
properties) and E (Redevelopment) must be returned after 2013. The other three A (Financing), C (Land banks),
and D (Demolition), may retain the funds indefinitely. See Sections below from Section II, N, noting that there is a
typo in the second one. Even more encouraging, Congress is considering removing the five year limit on the
other two. Stay tuned to the NSP website…


If NSP funds are used to purchase and rehab a multi-family unit are the rents considered program income.

If then NSP funds were used to purchase a multi family unit and this was then given to a not for profit do the rents
still become program interest.

In these cases what happens after 2013 with rental properties do they remain program income and for how long
or is it infinite.

Can you suggest any scenario where using NSP to facilitate the purchase and rehab of a multi family unit for
special needs populations might not have to return income to the NSP program.

Rents, NET of ALL reasonable operating expenses (including replacement reserves, debt service, management
fees, common area maintenance and utilities, etc.) are Program Income. No matter who owns it. Forever.

Given that all operating expenses can be covered, it should not hurt the project to have any excess returned.


Q: In the training last week in Orlando we were told that Program Income generated by certain eligible activities,
(specifically referring to financing strategy if we do permanent financing) could be retained by local government
for similar activities after 2013. Today in training, I was told that all PI must be returned. Could you clarify?
Also: if we leave funding in a home that we have purchased & rehabbed & sold as a principle reduction, is that
considered downpayment assistance?

I apologize for the confusion about Program Income. It has been a difficult subject, probably because there are
different requirements in the legislation. What you heard in training was true. See the following excerpts from the
NSP Notice, section II N.:

Since Financing is activity A, it does not have to be repaid after five years. Congress is considering changes that
would remove the 5 year rule for all activities, but for now it only applies to B and E.

In regard to your second question, the answer is NO. Principal reduction grants are not the same as
downpayment assistance (and therefore not subject to the 50% limit on DPA). In order to reach your affordability
targets, you may need to do more than downpayment assistance.


The NSP requires that, if an abandoned or foreclosed upon property is purchased, redeveloped, or otherwise
sold to an individual as a primary residence, then such sale shall be in an amount equal to or less than the cost to
acquire and redevelop or rehabilitate such home or property. The maximum sales price for a property is
determined by aggregating all costs of acquisition, rehabilitation, and redevelopment. The NSP also requires that
properties be purchased at a discount off of appraised value.

Question: If the costs of acquiring and rehabilitating a property result in a sales price to an individual that is
below market value, can the City place an equity sharing covenant on the property that requires any equity or
appreciation in the value of the property be shared with the City upon sale of the property. This would help to
ensure that properties purchased below market value are not subsequently resold or "flipped" for a profit.

Yes. In fact it is required by the affordability provisions of the Notice. Normally grantees place a second deed of
trust on the property for the value of the public investment. Proceeds would then be treated as Program Income
according to the NSP Notice. Current HUD policy requires repayment of NSP amount in full.

                                                                                                       Page 78 of 99
 As one part of our multi-faceted program design, we intend to assist eligible applicants to purchase vacant
foreclosed houses. We will provide 49% of the purchase price, including rehabilitation costs, while a bank or
other financial institution will provide 51% of the purchase price. We will take a subordinate lien position to the
bank. Our funds will be in the form of a deferred, no interest loan that would be due and payable when the home
owner conveys the property to another person(s). The loan could be in effect for any number of years……1, 2,
10, 20, 30 years. When the property is sold and our loan is repaid, what is the disposition of the program
income? The NSP regulations indicate that it should be returned to the Treasury. However, the regulations also
stipulate that HUD can provide a waiver in order for the entitlement agency to keep the program income. This
program income would be used in the future for other eligible activities. Should this waiver be requested now or
some time in the future?

The current rules would require repayment of the NSP loan by allocating 49% of the sale proceeds (in this case)
to the grantee as program Income. That could be at any time in the future. The requirement to repay Program
Income to HUD and then the Treasury applies only to Eligible Uses B (Acquisition and Rehab), which sounds like
what you are doing, and E, Redevelopment. To the extent that the activity was a Financing Mechanism under
Eligible Use A, it would still be Program Income but could be retained by the grantee for NSP-eligible activities. If
it’s a blend, it could get confusing. Let’s wait and see what develops.

You would have to request permission to keep the income when the funds are received. However, it is our
understanding that Congress may amend that requirement to allow recipients to retain all Program Income. We
will keep you updated via the website.

Later response…
This subject is being discussed intensively because there are overlapping, but not completely aligned, policies in
the NSP legislation, CDBG program, and HOME program (currently cited as the safe haven for affordability and
recapture/resale provisions). Therefore, you will have to bear with us for a little while longer; we hope to have
something more definitive on our website in the near future. Since this affects program implementation more than
design, we hope that this delay will not cause problems.

In the meantime, perhaps I can clarify a couple of things. First, the requirement to repay program income to HUD
(and then the Treasury) applies only to Eligible Uses B and E, Acquisition/Rehab and Redevelopment,
respectively. Income from A (Financing), C (Land Banking), and D (Demolition), is already allowed to remain with
the grantee for NSP-eligible activities. (See excerpt below from NSP Notice.)

Second, it is quite possible that Congress will remove the 5 year repayment requirement for B and E; we
understand there is some movement in that direction, but do not know if or when that might occur.

In either event, what you have described sounds more like a Financing Mechanism (E.U. A), than Acquisition and
Rehab (E.U. B). If the owner is purchasing the foreclosed property directly from the lender or servicer, and the
city is limiting its involvement to providing the second mortgage, then income from a future sale is likely exempt
from the five year repayment rule. If the city is involved in acquisition directly, then it would be subject to
repayment.

That said, there remain questions on how the program income is calculated, whether or not it must be repaid.
That’s where the overlapping policies come in. If you generate program income, and if you are still required to
repay it after five years, you would request the exemption at that time.

I regret that we cannot provide a complete answer right now and hope that it does not slow you down.

N. Alternative Requirement for Program Income (Revenue) Generated by Activities Assisted With Grant Funds

2. Program income generated by activities carried out pursuant to Section 2301(c)(3)(A), (C) and (E). (Typo,
should say D) Program income received may be retained by the State or unit of general local government if it is
treated as additional CDBG funds and used in accordance with the requirements of Section 2301. Revenue
received by a private individual or other entity that is not a subrecipient must be returned to the State or unit of
general local government.

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The city has an inventory of vacant properties, it would like to donate some of the lots that are located in the
areas with high foreclosure risk scores to our local Habitat to construct new homes that would be sold to families
with incomes<= 50% of median income.
In selling the homes Habitat carries and services the mortgages, are the payments made by the buyer
considered program income to Habitat and does it have to be returned to the City and after five years to HUD?

This area is undergoing clarification and so remains a little unclear. What is clear is that, using Eligible Use A,
Financing mechanisms (I assume), exempts the city from the 5 year limit. That only applies to B and E and is
reported to be under congressional review to be eliminated altogether. So, the program income will belong to the
city indefinitely for NSP-eligible uses.

How we calculate that Program Income is the confusing part right now. This will be worked out pretty soon so it
should be straight by the time you start. It’s just that NSP legislation, CDBG regs, and HOME regs all treat it
differently. The most conservative approach, as far as I can tell until we get the promised guidelines, is that
Habitat would have to return to the city a proportional share of income. Potentially that could include the monthly
x% of total costs net of operating expenses that you have subsidized, plus x% of sale proceeds. The more liberal
interpretations would follow the HOME program’s recapture/resale provisions. Sorry we do not have something
solid yet; we talk about it daily, so it definitely will emerge.


If we fund financing mechanism to assist a buyer purchase a home, is repayment of the principal loan (i.e. initial
investment) treated as NSP program income? In addition, if we have an equity share program, is the appreciation
returned to the City treated as program income?

I know if we purchase properties, rehab them, and then sell them, then we have a program income generated.
However, the City will not be purchasing properties directly. We are just providing the gap financing.

The proceeds in both of those scenarios would be program income. We are working on a policy that describes in
more detail how it is calculated in different circumstances. Note that Financing Mechanisms, Eligible Use A, do
not fall into the category of requiring funds to be returned to HUD after 2013. Any program income would have to
be used by the grantee for NSP-eligible activities.

Keep an eye on our website for more information on calculating Program Income.


Scenario: The State provides a private entity NSP funds to help purchase and rehabilitate a foreclosed rental
property. The funding sources are $100,000 of private financing, and a $50,000 NSP grant for a TDC of
$150,000.

Question #1: The statute provides that any revenue that is generated that exceeds the costs of acquisition and
rehabilitation must be provided to the State. Is it correct, then, that if the developer sells the property for
$160,000, only $10,000 has to be returned to the State or Treasury?

Question #2: After the sale, revenues of the new owner are not subject to repayment to the State or Treasury,
correct?

Question #3: If the developer keeps the property and operates it as a rental property, the only amounts subject
to repayment to the State or Treasury are those that exceed the total of acquisition, rehabilitation, and operations
of the property, correct?

Question #4: If the above is correct, may any required repayment be made at the time the property is again sold,
or must rental payments be made to the State or Treasury more frequently once the costs of acquisition,
rehabilitation, and operating have been collected? For example, if after 20 years the full cost of acquisition and
rehabilitation have been recovered through rents and now rents are $500 a month after operating expenses,
must that $500 be repaid to Treasury periodically (monthly, quarterly, annually) or may they be repaid when the
property is sold again to another buyer?


                                                                                                     Page 80 of 99
Question #5: Under the Notice, developers fees are permissible. In the case where the developer operates the
rental property after rehabilitation, is the developer permitted to retain a portion of the rents collected for profit?

I have forwarded your questions, similar to many others, to our Financial Management Division. They are
developing policies.

In the interim, I will say that many of your assumptions are incorrect. Profits are program income and must be
returned, but sale proceeds in general must be allocated proportional to the NSP participation, not just the
appreciation. As currently enunciated, that means that in your scenario, 33% of gross proceeds from the sale
would be program income. For commercial properties/rentals, that also means that 33% of net operating income
(after expenses including reserves, but before debt service), would be program income as well. The website
below describes such an example.

http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/memoranda/dekalb90.cfm

Is the grantee expected to fill out the program income field in form 424 in Section #15? While we do expect to
receive program income from sale of property to eligible housing applicants and payments from mortgage
assistance loans, the estimated funding would be challenging to quantify.
 Is the Standard Form 424A(Rev.7-97) required to be filled out as part of the NSP application?

The NSP website has a new SF 424 which is briefer.
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/afa.pdf

You may wish to make a conservative estimate of program income. HUD will not hold you to it since your
program does not rely on it for feasibility.


Please clarify HUD's requirement for program income. If an NSP grant was made to a household as down
payment assistance with a 10 year affordability requirement and that homeowner sells that home in 20 years, do
program income requirements apply? Or are program requirements no longer relevant when the document
enforcing affordability is no longer applicable?

HUD is still working out some differences between CDBG and NSP program income requirements. Part of that
involves trying to get some clarifying revisions in the legislation. We plan to have guidelines out in the near future
that address when and if repayments are required. Please check the NSP website for updates on this topic.


Our local Habitat for Humanity insists they can use NSP funds to acquire, rehab and resale properties to eligible
families earning below 50% AMI without paying anything to either the PJ or to HUD in program income.

Their model to date has been to solicit donations to pay the costs of acquisition and construction then to sell to a
family at 0% interest amortized over 30 years. The family makes payments based on affordability directly to the
Habitat affiliate. There is no cash changing hands at closing since HFH will hold the paper for the entire term.

It is our contention that since in this case acquisition and construction will be funded with NSP, any payments are
to be considered revenue and must be returned as program income. There will be a mortgage on the property
and a note for the amount of NSP funds invested. HOME affordability will be in place.

My question is this. Since the development would be financed at least in part with NSP funds (which will all be left
in the project because the buyer doesn't get a conventional mortgage) wouldn't any payment from the buyer need
to be returned as PI, at least the pro-rated portion representing the NSP share of development financing?

Would you address the issues of the original buyer selling the property before the end of the affordability term as
well? It appears to us there would be funds due at that sale as well.

I guess that they are looking at the second sentence in this paragraph which would allow it. However, it does not
require it and implies that such a decision belongs to the grantee (the county), not the subrecipient (Habitat). In

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your negotiations, I guess you can emphasize that it says “can provide for continued use”, not “must provide for”.
You can let them know that this was HUD’s intent.

The NSP Notice provides that revenue received by a private individual or other entity that is directly generated by
an activity carried out pursuant to Section 2301(c)(3)(A) must be provided to the grantee. However, since the
grantee could immediately use that revenue to make another loan to the Developer for a similar activity, the loan
agreement between the grantee and Developer can provide for continued use as described above, subject to
compliance with all applicable NSP requirements.

Follow up response:
It would be good for you to hold off on your discussions with Habitat until we clear up some discrepancies. The
answer to the third question that you sent appears to contradict the second and I need to get some clarity before I
can give you comfort on my last advice. Sorry, but we are working hard on the answers.


Thank you for the direction and I have read the questions and answers. The last part was does the money have
to be returned to HUD after July 2013 and the answer is yes since we are the grantee and HUD is the grantor.

Sorry to labor this but it is important since we are very actively trying to put in place a great program for using the
funds.

If you are referring to the following sentence, it seems confusing to me also. I have asked for a restatement:

Must the revenue be returned to HUD after five years?

        Revenue generated by activities carried out pursuant to Section 2301(c)(3)(A) does not have to be
        returned to the grantee after five years.

I would have started by saying that revenue from Eligible Use A, financing mechanisms (the purchase money
mortgages referred to in earlier questions) does not have to be returned to HUD. Only revenue from Eligible Uses
B and E must be returned to HUD after 5 years.

However, as in the regular CDBG program, it is up to the grantee whether to require that the funds be returned or
to allow them to stay with the subrecipient (Habitat in this case).

Prorating NSP Funds

I have another quick question for you from one of my NSP grantees...they ran across a property that is cheap
and in their target area and could be a potential land bank or rehab. If they follow all applicable regulations can
they buy it with general corporate funds now and get reimbursed later through NSP or do they need to wait until
their plan gets approved?

Our position is that the Notice only discusses planning and admin under pre-award. Therefore, grantees may not
purchase property and reimburse themselves. If they feel confident about obtaining it, they can get the appraisal
and do environmental, which would be admin and save them time after grant award.


Public Facilities

Can NSP funds be used for homeless shelters and transitional housing?

It is important to differentiate between the between eligibility of activities, income targeting requirements and
CDBG national objective requirements that apply to the NSP program. NSP funds can be used to develop
homeless shelters or transitional housing. Facilities designed to provide shelter for persons having special
needs, such as homeless shelters and group homes, are eligible as public facilities under 24 CFR 570.201(c).
Any such facilities that are not permanent housing would be categorized as a public facility. It is possible to
redevelop demolished or vacant property for such use under Eligible Use E, Redevelopment. Under Eligible Use

                                                                                                        Page 82 of 99
B, a grantee could purchase and rehabilitate residential properties for reuse as special needs housing.

For a housing activity to count toward meeting the NSP program requirement that 25% of a grantee’s NSP funds
must be expended for activities that benefit households at or below 50% of area median income, it must be
considered permanent housing and not a public facility under 24 CFR 570.201(c); and it must meet the
low/moderate/middle income housing national objective criterion under 24 CFR 570.208(a).

Public Housing

George Weidenfeller, private counsel (and former HUD Deputy General Counsel), called me to ask about use of
NSP in public housing projects. He would like to know his options with regard to vacant multifamily properties.
Can NSP be used to rehab/redevelop 1937 Act public housing stock that is sitting empty?


If it’s in an area of greatest need and is vacant, it could be redeveloped under Eligible Use E. On the other hand,
why wouldn’t the community look to PIH for that?


NSP dollars could be used for units with HUD vouchers or TBRA?

Yes, as long as they are used in connection with foreclosed residential properties. I assume you are asking if
they can be combined with other NSP funds, and the answer is still yes. Write back if I misunderstood.

Purchase Discount
If NSP funds are used to purchase a home and, therefore, the home is purchased at a minimum 5% below
current market value, then if NSP funds are also used to provide downpayment assistance to an individual
homebuyer for that home, does there need to be an additional discount off the current market value since these
are two distinct NSP eligible activities?

The Notice requires that the house be sold for an amount equal to or less than the price of acquisition and
rehabilitation. The downpayment assistance is one way to lower that price to the level of affordability that you
have defined. It does not, in effect, add to the cost.


This is a discounting question: It looks to us like the discount required at 2301(d)(1) applies if our NSP activity is
2301(c)(3)(B), purchase and rehab, or other acquisition activities by the Grantee. If the activity is 2301(c)(3)(A),
Financing Mechanism, then the limitation at 2301(d)(3) applies, but not discounting…do you agree?

The discount requirement applies only to properties acquired from foreclosure.


We wish to state in the Action Plan that we will develop and implement a methodology to determine if we need to
get a 15% aggregate discount on acquisitions or if we can document that 10% is justified in the market, based on
the criteria in the Notice, but we will not have the methodology itself worked out. Will this be acceptable?

Yes, the NSP Notice does not require you to have the policy prior to submission of the amendment.


1. A rumor is circulating that HUD is rethinking the 18 month obligation requirement. Is it?
2. A grantee can't find the specific reference to the 15 percent discount requirement - only that properties be sold
at a discount. The 15 percent aggregate discount rate is a HUD requirement, we understand that HUD is
rethinking this, is it? We heard that Massachusetts is asking for a no discount ruling - and someone else 10
percent. If this is happening, on what basis are they making these requests? We need HUD to be aware that the
discount is adding to destabilizing already unstable market areas.
3. Is there anything that can be done at a higher level to alert banks to work with NSP grantees or regional "pots"
of money? Many banks have long lists of REOs - grantees are potentially negotiating with impossibly large

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number of different lenders. If that list could be narrowed down to a few major lenders like Wells Fargo, Bank of
America, that would increase the chances for program success; with the new FDIC/Indymac partnerships - there
should be some opportunities for synergy; partnerships with other Federal programs. Can HUD help grantees
bridge these relationship gaps?
4. There is a rumor circulating that you can acquire property not foreclosed or abandoned on if you build
affordable housing on it.
    1. We have not heard that rumor.
    2. The Purchase Discount requirement is part Q of the NSP Notice. Individual properties must be purchased
        for at least a 5% discount. The entire portfolio that a community purchases must total 15% discount on a
        dollar value basis. Communities that apply the formula in section Q on holding costs may be able to use
        a 10% overall discount rate. HUD is working with the Appraisal Institute and others to inform appraisers
        that they can, and should, exclude the value of government actions (like the discount requirement) in
        determining value. In this way, HUD hopes to avoid the downward spiral in values that you noted could
        occur.
    3. Several national non-profits are trying to work on a larger scale to streamline the transfer of properties.
        One is the National Community Stabilization Trust described in the attachment. They are still ramping up
        but should be ready to assist NSP grantees fairly soon.
    4. Under Eligible Use E, Redevelopment, grantees may acquire any type of property as long as it is vacant
        or demolished. One of the many things that can happen on such property is new affordable housing
        construction. Others are public facilities such as parks. Any such use should be in an area of greatest
        need and support other activities being undertaken with NSP funds

Does the Purchase Discount rule also apply to financing mechanisms such as: Down Payment and Closing Cost
Assistance? It appears that the regulations talk about purchase discount when it only pertains to Acquisition.

The purchase discount applies to all purchases of foreclosed properties (but not abandoned properties, or under
E, voluntary sales). This is true even under Financing Mechanisms when a family buys a foreclosed property and
uses NSP as a soft second or for downpayment assistance. Congress wanted to make sure that
lenders/servicers did not seem to be benefiting from NSP.


The NSP notice requires that the acquisition of foreclosed properties with NSP funds must be at a discount (at
least 5%) from the market value of the property as determined by an appraisal completed within 60 days of the
purchase offer. However, the notice goes on to say that the URA’s notice requirements regarding voluntary
sales also applies. This requires that the buyer notify sellers that they believe their offered price current market
value of the property. Here is the language from HUD’s form from Appendix 31 of HUD Handbook 1378:

“We are prepared to offer you ($)_____________ to purchase your property. We believe this amount represents
the current market value of your property. Please contact us at your convenience if you are interested in selling
your property.”

This would seem to place buyer receiving NSP financial assistance to purchase a foreclosed property in a difficult
position and at a competitive disadvantage. How are grantees supposed to reconcile these conflicting
requirements?

The discount requirement is statutory for NSP (not merely a Notice requirement). Sample revised informational
notices to meet the URA voluntary acquisition requirements have been developed for NSP which can be
accessed from the NSP website under “Requirements:”
http://www.hud.gov/offices/cpd/library/relocation/nsp/index.cfm


Redevelopment

Question: If a property that is already owned by a governmental entity, however not foreclosed or abandoned but
purchased by the entity from a private owner, and the intended use is for single family homes, can NSP funds be
use to help redevelop this property? This property is an existing project.


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HUD is taking the position that redevelopment does not apply only to property purchased with NSP. The
legislation does not state this and HUD has taken a literal interpretation. Keep in mind that its use must benefit
LMMI people as housing, or public facility, or employment.


My understanding from reading the various HUD correspondence/regulations on this, that “vacant” property is
eligible for redevelopment (see the 5th item from the HUD website, below). The project I am referring to is a
vacant property in an eligible area, to serve income eligible persons.

Yes, I think you could do that. We have been getting more guidance and the trend seems to be that the
redevelopment category allows quite a lot of flexibility.


Does redevelopment allow for an entity to use NSP funds when the land was purchased not as a result of having
been foreclosed upon?

Yes


Is the funding of redevelopment of vacant properties under Public Facilities National Objective activity restricted
to only property acquired through the purchase of foreclosed property or can NSP funds be utilized to redevelop
vacant property not acquired through foreclosure? The guidance and the table are not clear in this regard except
to limit the acquisition to foreclosed property.

No, redevelopment is not limited to property acquired through the NSP program. The legislation does not make
this connection for redevelopment, and therefore HUD has not either.


But under redevelopment doesn’t the property have to be abandoned and in the process of foreclosure?

No, just vacant. The foreclosed or abandoned requirement from section B has been determined not to carry over
into E.


If acquiring property for redevelopment under eligible activity (E) (i.e. acquiring property that has not been
foreclosed on for redevelopment) do the discounted purchase price requirements still apply?

Yes, the discount requirements apply, unless it's a "voluntary acquisition" (see NSP Notice section II K). Note that
activity E applies only to vacant buildings or property.


We use NSP funds for downpayment assistance to a buyer buying a new home on what was a vacant piece of
land. Is that eligible? If it is eligible is it (A) establish financing mechanisms for purchase and redevelopment of
foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss
reserves, and shared-equity loans for low- and moderate-income homebuyers or is it (E) redevelop demolished
or vacant properties.

Eligible Use A can only finance foreclosed-upon homes and residential properties. But you would have to
purchase the land under E in order to make the new house eligible for direct homeownership assistance
(including new construction). I am not sure if that accomplishes what you need.


Can an entity that has received an allocation of funding under the NSP use already existing vacant land which
they own to develop affordable housing that meets the income guidelines as contained in the federal
regulations? Or must the property used for development of affordable housing be acquired after the property has
gone through the foreclosure process?

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Second part of the question is, if vacant, developable land exists that has not gone through the foreclosure
process, can NSP funds be used acquire and develop that land for affordable housing with the idea that the
housing will meet the income guidelines in the federal regulations?
Bottom line is the eligibility of NSP funding and the process to acquire property on which to develop affordable
housing (i.e. apartments).

A: Yes, An entity that has received an allocation of funding under the NSP can use already existing vacant land
which they own to develop affordable housing that meets the income guidelines as contained in the NSP federal
regulations and is eligible under (E).

A: Yes, vacant land that has not gone through the foreclosure process can be acquired and developed for
affordable housing under NSP. This is eligible under (E).


The City of Miami would like to know what program rules would apply when combining federal funds.

Example:
A building is purchased with CDBG or HOME funds. Now, the City is ready to develop using NSP funds. Which
program rules would supersede/apply? CDBG/HOME or NSP?

In general, the most restrictive rules will apply when there are competing requirements. Hopefully, the fact that all
three are HUD programs will minimize the chances of confusion. You might also think about funding discrete
sections with different sources of funds, if possible. If things get extremely complicated, you should contact the
Miami HUD Office for guidance in sorting it out.


Can NSP funds be used to re-develop vacant property owned by the City of Miami, which was not foreclosed
upon, demolished due to blighted conditions or purchased utilizing NSP funds?

Yes, as long as the property was vacant and there is a good strong linkage with your other activities in areas of
greatest need. Redevelopment (Eligible Use E) has no limits on property type (commercial, public, etc.) but it has
to be vacant (including vacant structures) and the redevelopment has to begin soon. It should not be a way to
land bank.


Eligible activity question regarding "E" eligibility - redevelopment Please let me know whether this is eligible: A
non-profit has a group home for developmentally disabled adults (eligible under CDBG 570.201 (c) public
facilities). They have a large piece of vacant land surrounding their facility. Would it be eligible under NSP under
"E" to build an addition to this facility so they could serve more clients?

Under E, you could redevelop the vacant land as an expansion of the public facility. However, it should be
located in one of your areas of greatest need and bear a reasonable relationship to the other work that you are
doing with NSP funds in that area. HUD wants to ensure that redevelopment does not become a wide open way
to build public facilities, which would not meet the intent of the legislation. However, it can be done if part of a
comprehensive approach.

Please clarify how an NSP grantee would redevelop blighted structures that do not fall under the definition of
foreclosed or abandoned?

To the extent that a grantee wishes to use NSP funds for activities that are eligible under only one of the five
eligible uses, the five eligible uses listed in HERA and the NSP Notice can be viewed as severable and discrete.
However, the provisions of the different Eligible Uses become cumulative if a grantee wishes to use NSP funding
for multiple eligible activities on the same project, and those eligible activities are not all categorized under the
same one Eligible Uses.

Under Eligible Use E, a grantee may use NSP funds to redevelop a property that is vacant or has been
demolished. Providing NSP funds are only used for redevelopment activities listed under Eligible Use E, the

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property need not be abandoned, foreclosed upon or previously residential.

If the property to be redeveloped is not vacant or previously demolished, NSP funds can be used to demolish
structures on the property prior to redevelopment, under Eligible Use D. However, in order to use NSP funds for
demolition, the structures must be blighted, but they need not be abandoned and they need not be residential.

If a grantee wishes to use NSP funds to purchase and then demolish and redevelop a property, then they must
qualify the acquisition under Eligible Use B. Under Eligible Use B, homes and residential properties can be
purchased with NSP funds if they are abandoned or foreclosed upon; the grantee can rehabilitate, sell, or rent
such properties under Eligible Use B; the demolition can be undertaken under Eligible Use D, and the grantee
can redevelop the properties under Eligible Use E.

If a grantee wishes to purchase a home and envisions redeveloping the property sometime in the future for some
presently-unknown use, the acquisition can be undertaken under Eligible Use C, Land Banks; Eligible Use C can
be used only for purchasing and maintaining or disposing of foreclosed upon homes; vacant property, abandoned
property or nonresidential property cannot be purchased under Eligible Use C. However, if the redevelopment of
the property is imminent, then Eligible Use C would not be appropriate, as the grantee’s intent is clearly not to
just buy the property and hold it for some indeterminate period for eventual reuse.

If a grantee wishes to use NSP funds to provide financing to another entity for that other entity to purchase or
redevelop a homes or residential properties, that must be undertaken under Eligible Use A; the property must be
foreclosed upon and must be residential.



If a non-profit wants to open a homeless shelter and they buy the property for the shelter before NSP funding is
available, would the property still be considered vacant? If so, can a non-profit own a piece of property that is
vacant and redevelop it?
A nonprofit can undertake a public facility under 24 CFR 570.201(c), as part of Eligible Use E (Redevelopment).
Under that regulatory provision, a nonprofit can own or operate a public facility provided that its services are
available to the general public.
From the question, HUD assumes that the grantee or the nonprofit entity intends to use some source of funds
other than NSP funds to acquire the property. Ownership of the property has no bearing on whether it is vacant,
under Eligible Use E. A vacant property is one on which the land and/or buildings are vacant (unoccupied). If
there are no structures on the property, then the vacant property can be redeveloped (a homeless shelter built on
it) under Use E. If there are blighted structures on the property, the grantee or nonprofit could use other funds to
demolish those structures; the property would then be vacant and can be redeveloped under Use E. If, however,
the grantee or the nonprofit wishes to also use NSP funds to demolish any structures on the property, the
demolition itself must be eligible under use D, and thus the buildings must be blighted. The grantee and the
nonprofit should be aware that their acquiring the property with other funding may have implications regarding the
applicability of Environmental and Uniform Act requirements, since NSP funds are clearly envisioned for eventual
use in this project.

25% Low-Income Set-Aside
The HERA law requires that 25% of a grantee’s grant must be used for activities that will house individuals or
families with incomes at or below 50% of the area median income. The NSP program also allows a grantee to
use up to 10% of its grant for general administrative and planning expenses. Is the 25% low income targeting
requirement applied to the entire grant amount, or only to the 90% of the grant that is not used for planning and
general administration?

The HERA statutory language in question begins with the language “not less than 25 percent of the funds
appropriated or otherwise made available under this section…” HUD believes that the 25% low income targeting
provision must be counted against the entire grant amount. For example, if a grantee received an NSP allocation
of $4,000,000, and uses $400,000 for planning and general administration, it has $3,600,000 for specific
activities. The grantee must ensure that at least $1,000,000 (25% of $4 million) of its grant is expended for
housing for individuals and families with incomes at or below 50% of the area median income. If it were to only
expend 25% of the $3.6 million (or $900,000), it would not be in compliance.

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Thank you very much for such a quick response. I have one more question. In constructing the homes, because
Habitat uses volunteers the cost to construct the homes are typically lower than average. Once constructed,
typically the house appraises $20,000 - $40,000 above cost. To protect the families from predatory lenders
Habitat sells the house to the family at the market value, makes the first mortgage at whatever level in affordable
to the family and makes a forgivable second that amortizes at the same rate as the first. Are we to assume that if
we provide NSP funds for construction that they can only sell the home to the family at cost?

The Notice and law are clear that the sale price cannot exceed the cost of acquisition and rehab. This means that
you cannot calculate a value for donated labor and include that in the sale price. As I understood your question,
you did not intend that.

What you want to do is place a lien for the difference between hard costs and market value. You can do that.
Whether you can forgive that value remains under discussion. We are trying to develop a comprehensive policy
for such situations. Please check our website for updates.


Questions:
   • Is it an eligible use to acquire and develop vacant foreclosed subdivision lots that have been improved,
       but not built upon?
   • Is it an eligible use to convert foreclosed commercial properties (i.e. old motels) into residential uses?
   • Would it be allowed if the foreclosed commercial properties were vacant?

    •   Yes, vacant foreclosed subdivision lots can be acquired and redeveloped under Eligible Use E.
    •   Yes under Eligible Use E as long as the motels are vacant.
    •   Yes under Eligible Use E.

We are still confused by choosing a developer VS subrecipient or contractor. We under stand that a subrecipient
has to comply with Part 84 and that a contractor does not in procuring goods and services. However, in choosing
a developer, you indicated that the communities nor a nonprofit have to comply with part 85 or 84 to obtain a
developer. But if a developer is providing goods and services, i.e., housing or rehab, what provisions allow them
not be chosen without competition? Please provide the statutory or regulatory citation.

In my experience at different levels of government and in the private sector, developers are frequently chosen
through a request for proposals or request for qualifications process. This is different than a pure contractor
procurement because the scope is often broader and less well defined. On the other hand, they are not
subrecipients either, since they are for profits not associated with 570.201(o) economic development. Grantees
are well advised to have some competition to avoid the appearance of favoritism. However, from what Paul said,
I gather that we cannot strictly require it. However, most cities that I am familiar with do use some competition.
The developer may already have purchased foreclosed property, and therefore feel that s/he is a sole source
provider, but public agencies usually make them compete for the subsidy funds, in this case NSP. One of the
biggest factors is qualifications because even local developers can get into trouble financially and end up unable
to complete projects.

The definitions are below. I hope this helps.

570.500 offers this definition of a subrecipient:

c) Subrecipient means a public or private nonprofit agency, authority, or organization, or a for-profit entity
authorized under §570.201(o), receiving CDBG funds from the recipient or another subrecipient to undertake
activities eligible for such assistance under subpart C of this part. The term excludes an entity receiving CDBG
funds from the recipient under the authority of §570.204, unless the grantee explicitly designates it as a
subrecipient. The term includes a public agency designated by a unit of general local government to receive a
loan guarantee under subpart M of this part, but does not include contractors providing supplies, equipment,
construction, or services subject to the procurement requirements in 24 CFR 85.36 or 84.40, as applicable.

There does not seem to be a definition of a real estate developer in the CDBG regs. The City of Chicago uses the
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following:
A Residential Real Estate Developer License is required for developers of residential projects, including anyone
who acquires vacant land and improves it with a residential building, who acquires an existing residential building
and improves it, and who sells the improved property or any portion of the property.
In my experience, this would also include developers of any income-producing property, such as commercial or
industrial property and would include those who retain and rent it for some period of time, in addition to those who
sell it immediately after development.

Wikipedia describes it this way:
Real estate development is a multifaceted business, encompassing activities that range from the renovation and
re-lease of existing building to the purchase of raw land and the sale of improve parcels to others. Developers are
the coordinators of those activities, converting ideas on paper into real property. They create, imagine, fund,
control and orchestrate the process of development from the beginning to end. Developers usually take the
greatest risk in the creation or renovation of real estate -- and receive the greatest rewards. Typically, developers
purchase a tract of land, determine the target market, develop the building program and design, obtain the
necessary public approvals and financing, build the structure, and lease, manage, and ultimately sell it.

Follow-up email:
The reason I look at it as a competitive process, because, since, they are not considered a subrecipient and
cannot “just” be chosen to develop a property and they are applying for Federal funding from local communities,
then a competitive process is usually set up to judge the most qualified projects.

Response:
The grantees have to determine how to meet A-87 and other applicable requirements. Developers are something
of a gray area.


Regulatory Information

When will the notice for the program be published? It was my understanding that it was to be published in the
Federal Register today but it did not appear.

The federal Register notice is now posted to the NSP website. Please visit the site for more information. Thank
you.


Have the Neighborhood Stabilization Fund regulations been published yet. If so, where on the internet can I find
them.

Yes, the NSP Federal Register Notice is currently available on the NSP website. This document serves as the
rule for the program.


Can we meet the LMI requirement for NSP funds on an area-wide basis by creating an NRSA?

Please check Section E on page 58335 of the attached NSP regs. You don’t need an NRSA. You do need to
target areas of highest need (foreclosures, etc.). All activities have to benefit people below 120% of area median
income, so it should not be extremely hard.


We have a couple properties that are in foreclosure that are multi-family rental. They are not completely vacant.
They are 10 – 25% occupied. In our market, the only vacant multi-family would be tear-downs. These properties
have been a blight in the community for many years and we are very interested in using the NSP funds for partial
demo and acq & rehab. The regs state that the properties must be vacant. Is that only true for owner occupied or
is it also true for multi-family?



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The NSP eligible uses in the law have specific limitations. Only blighted structures may be demolished.

Only residential properties that are abandoned (vacant+no payments) or past tense foreclosed upon may be
purchased. This applies to single and multi-unit properties.

In other words, they do not have to be vacant IF foreclosure proceedings are complete (but not until then).

Until this year, mobile homes in Vermont on leased land could not be titled. All an owner has is a bill of sale and
all a lender can use to secure a loan is a UCC-1. Repossession is the common method of recovery when an
owner defaults. While the regulations give some deference to the "foreclosure process" by state, my question is:
Can "repossession" of a mobile home be treated as a foreclosure for purposes of using NSP funds for
acquisition, repair, or demolition?

This is what I learned from someone with more history.

The CDBG policy has long been to treat mobile homes as personal property when the grantee does, and to treat
them as real property when the grantee does.

The question then is whether, since the state now treats them as real property, they are grandfathered and
considered real property. If MH are still personal property, our answer would be that you cannot do it.

Do the resale/recapture provisions apply?

The Notice says:
3. a. In its NSP action plan substantial amendment, a grantee will define ‘‘affordable rents’’ and the continued
affordability standards and enforcement mechanisms that it will apply for each (or all) of its NSP activities. HUD
will consider any grantee adopting the HOME program standards at 24 CFR 92.252(a), (c), (e), and (f), and
92.254 to be in minimal compliance with this standard and expects any other standards proposed and applied by
a grantee to be enforceable and longer in duration. (Note that HERA’s continued affordability standard is longer
than that required of subrecipients and participating units of general local government under 24 CFR 570.503 and
570.501(b).
The answer is yes. Under 92.254, the grantee establishes either resale or recapture restrictions to ensure
continued affordability of homeownership housing. (92.252 covers rental housing.)
PLEASE NOTE THAT AS OF NOV. 25, 2008, THIS TOPIC WAS UNDER REVIEW BY THE POLICY TEAM AT
HEADQUARTERS. THESE STATEMENTS MAY BE MODIFIED.


For the 424 what is the Federal Domestic Assistance Number for the Neighborhood Stabilization Program Grant?

HUD has decided to use the same CFDA number as the CDBG program for NSP, which is 14.218.

Will the Federal Identifier be the same (I am thinking it will be)? And Should the NSP be put in as program title?

Yes and Yes


Following the URA regulations it would require us to send a letter to the sell(Bank) regarding the occupancy and
other conditions 60 days before you can close. Is this requirement still in place.

Response: There is no such requirement in the URA regulations.

It is not clear whether the inquiry is meant to address voluntary acquisitions, or involuntary. I am assuming we
are referring to voluntary acquisitions. The URA notice requirements for voluntary acquisitions follow:

If the acquisition of a property from a bank is a voluntary, arm’s length transaction, the purchaser must:

    1. If the purchaser is an agency that has the power of eminent domain, written notice must be provided to

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          the seller (bank) that states that the agency will not acquire the property if negotiations fail to result in an
          amicable agreement, and that informs the owner of what it believes to be the market value of the property
          (49 CFR 24.101(b)(1)((iii) and (iv).

      2. If the purchaser is an agency or person that does not have the power of eminent domain, prior to making
         an offer, written notice must be provided to the seller (bank) advising that the agency or person is unable
         to acquire the property if negotiations fail to result in an agreement, and informing the seller of what it
         believes to be the market value of the property (49 CFR 24.101(b)(2)(i) and (ii).


Can HUD provide clarification on the Davis-Bacon requirements as they apply to NSP funds?

All the usual rules apply with only a few exceptions. Davis Bacon applies.


Does regular CDBG procurement requirements apply?

Yes


Do vacant buildings or properties purchased under activity E have to be abandoned or foreclosed (as defined in
regs) or just "vacant"?

Just vacant


Does the permitted use under section 2301(c)(3)(E) of HERA, to "develop demolished or vacant properties"
require that the properties developed meet the requirements of being "abandoned or foreclosed upon"?
Thoughts on interpretation: Legislative drafting is usually very precise, and I believe the use of the terms
"demolished and vacant properties" indicates that Congress contemplated a different type of property than was
intended by the terms "abandoned and foreclosed upon".

HUD has interpreted Eligible Use E, Redevelopment, in line with your concept of it. As long as the properties are
vacant, a grantee may eligibly use the Redevelopment category to assist them. They need not, as you surmised,
be abandoned or foreclosed upon.

There are a couple of caveats that apply, though they do not seem to affect either of the examples you noted.
First, all or a substantial portion of the NSP funds must be used in areas of greatest need. While grantees may
undertake projects outside these target areas on occasion, they must document a purpose in doing so that
supports the HERA legislation. Second, there are limited uses of the Redevelopment funds that correspond with
CDBG eligible uses. For example, rehabilitation is not permitted. New construction is eligible, noted separately
below the “crosswalk”. It sounds like both of your projects involve new construction, so they should be fine.


The City is working on another LIHTC deal where the site was originally a highrise that was foreclosed upon by
HUD. Since this time (more than five years ago) both the City's Urban Redevelopment Authority and a private
LIHTC developer has owned it. The developer currently owns it and was awarded LIHTC to build a new
affordable building on the site. Does this fit the definition of foreclosed?

This question has not come up yet, but there does not seem to be any time limit on a foreclosure. If it meets your
definition of blighted, you could demolish it with NSP funds. Then you could consider the assistance to be
Redevelopment of a vacant site, and it would probably work. Since demolition does not have to occur on
foreclosed property and redevelopment only requires a vacant site or structure, this would sidestep the timing
issue on the foreclosure. As with the other project, location in an area of greatest need would be ideal. I will bring
the timing question to our policy discussion group but if you can demolish it, it should not matter.



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If there were tenants in the property when the lender/servicer completed foreclosure and the lender/servicer
completes the eviction process prior to initiation of negotiations for the sale of the property to a locality that uses
NSP funds to acquire the property, does the locality need to comply with the 12-month look-back provision of the
URA?

There is no 12 month “look back” period in the URA statute or regulations. Any legal occupant who is evicted for
the purpose of evading a relocation obligation may be eligible for assistance. The URA does address “Eviction
for Cause” at 49 CFR 24.206.

Under section 104(d), HUD looks at “vacant occupiable” lower-income dwelling units that have been occupied
within 3 months before the execution of an agreement for one-for-one replacement purposes and we would see
this as a reasonable timeframe for any NSP grantee to consider when approaching an owner about purchasing a
foreclosed property under this new program (for some level of assurance that the owner did not evict a legal
occupant in order to sell the property as vacant to the grantee). However, a grantee must use due diligence
when approaching any owner about purchasing property with Federal funds, particularly if the property is
currently occupied or may have been recently occupied, to assure that the project does not influence the owner’s
decision to evict an occupant and cause their displacement in order to participate in the grantee’s program.

Where an owner either evicts a tenant in order to sell a property as “vacant” to an Agency for a HUD-funded
project, HUD will usually presume that the tenant was displaced “for the project.” In such cases, the Agency
would be responsible for finding the displaced tenant and providing appropriate relocation assistance, unless the
Agency can prove that the tenant’s move was not attributable to the project (see HUD Handbook 1378, Chapter
1, paragraph 1-6 J.1, regarding evictions for additional guidance).
http://www.hud.gov/offices/adm/hudclips/handbooks/cpdh/1378.0/1378chp1CPDH.pdf


Does NSP trigger Davis Bacon when the funds are used solely for down payment assistance or closing costs?

No. Davis Bacon applies only when rehabilitating or constructing 8 or more units.

Response:
The project in question is more than eight units. That being the case, Davis Bacon will apply, right?

DB would apply when CDBG funds are used to finance construction work. So, I’d say using CDBG for
downpayment assistance and closing costs solely to purchase an existing property wouldn’t trigger DB.


We intend to work with for profit developers to execute some of the rehabilitation of properties. Are those for-
profit developers required to submit to us audited financial statements in order to participate in the program?
What other requirements would they be subject to?

This work is subject to Federal Procurement standards, and probably state as well. These do not require
submission of financial statements, but generally grantees require proof of experience and bid and performance
bonds to assure the financing will be completed. See attached OMB Circular A-85 for federal procurement
standards for cities and counties.

http://www.hud.gov/offices/cpo/grantees/cfr8536.cfm


What is the intent or meaning behind the following certification. Can someone at HUD explain it to us so that we
are clear moving forward?
(12) Excessive Force. The jurisdiction certifies that it has adopted and is enforcing: (1) a policy prohibiting the
use of excessive force by law enforcement agencies within its jurisdiction against any individuals engaged in non-
violent civil rights demonstrations; and (2) a policy of enforcing applicable State and local laws against physically
barring entrance to or exit from, a facility or location that is the subject of such non-violent civil rights
demonstrations within its jurisdiction.


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As provided in the NSP Notice, NSP funds are to be treated as CDBG funds and thus, are subject to the
requirements of Title I of the Housing and Community Development Act of 1974 (“the Act”), unless alternative
requirements are provided by the NSP Notice. Section 104(l) of the Act, 42 USC 5304(l) prohibits CDBG funds to
be given to a local government that fails to protect individuals engaging in nonviolent civil rights demonstrations.
Section 104(l) explicitly requires adoption and enforcement of the policy prohibiting the use of excessive force by
law enforcement agencies and the policy enforcing applicable state and local laws against physically barring
entrances. HUD requires NSP grantees to certify to the requirements to indicate their agreement to comply with
the statutory requirement. It should be noted that states are also subject to this certification requirement under
NSP because states may act directly rather than distributing funds to units of general local government.


As a disability advocacy organization, we would like to recommend that accessibility or universal design be
involved within the rehabilitation projects of NSP-funded multi-family housing and single family homes. We would
like to submit the following comments to address the development of the Action Plan for the Neighborhood
Stabilization Program:

    1. As you may know, for federally-assisted entities, HUD 504 regulations include accessibility requirements
       concerning alterations and substantial alterations within residential properties. How will these
       accessibility requirements be included within proposed projects that involve rehabbing and alterations of
       existing housing structures?

    2. We advocate that people with disabilities can benefit from home ownership opportunities. How can the
       proposed projects that will create home ownership opportunities meet the need of the disability
       community? As a federally-assisted program, please ensure that people in need of accessible housing
       can benefit from these home ownership opportunities.

    3. We recommend that HCD and HUD include policy that will address accessibility requirements that HUD
       504 may apply to this program and/or universal design to be incorporated within the alterations and
       substantial alterations of these foreclosed or blighted housing structures.

The NSP Program requires compliance with all applicable Community Development Block Grant regulations,
which include adherence to the ADA and Architectural Barriers Acts for all construction and renovation. This
would apply both to rental and ownership housing. NSP grantees are very familiar with these requirements from
working with the CDBG program. NSP is likely to create many ownership opportunities. We would recommend
that advocacy groups like yours deal directly with local program administrators to ensure that they remain
cognizant of your desires.


A question has been raised by a potential project sponsor as to whether properties that have been foreclosed by
means of a reverter deed would be considered foreclosed under the NSP program. Does the NSP require a
“cleaner” title than a quit claim deed?

The NSP Notice defines foreclosed as follows:

Foreclosed. A property ‘‘has been foreclosed upon’’ at the point that, under state or local law, the mortgage or tax
foreclosure is complete. HUD generally will not consider a foreclosure to be complete until after the title for the
property has been transferred from the former homeowner under some type of foreclosure proceeding or transfer
in lieu of foreclosure, in accordance with state or local law.

Rehabilitation Standards

I’m still confused about the use of the term rehab standards. In the HOME program, rehab standards are
required to be established by the program. The standards establish the type and quality of materials used. It
prevents a work write up from simply stating that the roof must be replaced. It requires the roof replacement to
be more specific as to the type of roof, e.g. asphalt shingle, tile, etc., and the quality/brand of the product, e.g., 30
year Corning asphalt shingles. Rehab guidelines establish what type of things may be rehabilitated, e.g., new
roof, plumbing, electrical, flooring, etc. It also establishes the limits of funding that can be used per home. With

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that said, I thought I saw something in the NSP regs that requires each home rehabbed to be brought up to local
code as does the HOME program and unlike the CDBG program which does not have that requirement. I was
reading the sections I and J in that context. Am I correct in doing so, or are rehab standards in the NSP more
along the lines of the standards I described above? Please explain.

I will copy Mark Walling (Dep. Div. Director), since he has done rehab on the public side and construction on the
private. The law says:

(2) REHABILITATION.—Any rehabilitation of a foreclosed upon home or residential property under this section
shall be to the extent necessary to comply with applicable laws, codes, and other requirements relating to
housing safety, quality, and habitability, in order to sell, rent, or redevelop such homes and properties.
Rehabilitation may include improvements to increase the energy efficiency or conservation of such homes and
properties or provide a renewable energy source or sources for such homes and properties.

What Mark made me realize is that it does not say “all adopted local building codes”, but “applicable laws,
codes,” etc. So it seems to me, and we made need to run this by some other experts, is that the grantee could
adopt a different, more basic code that would become the “applicable code” for this program. That is, many local
building codes take up 4 feet of shelf space with their complexity and level of specified performance. I am not at
all sure that Congress intended it to be that specific or to meet an unreasonably high or expensive standard.
Mark said that the national Housing Code is a fairly modest document and, I infer, does not require the same
standard of work, but rather something closer to decent, safe, and sanitary. Let’s kick it around.
We have agreed here that the grantee must adopt standards, but that they are not necessarily the local building
codes. Therefore, they could use the HOME standards which provide some structure without overkill and still
result in decent, safe, and habitable structures. We checked into the National Housing Code, but it seems to have
been subsumed into other documents. The HOME standards seem like a good starting point.

The guide specifically sites washer or dryer as an example of equipment that is not allowed. In our region, it is
quite common for this equipment to be included in a home sale. And therefore, Laundromats are less common
and may be distant and inconvenient to the homebuyer.
The City of Dearborn would like its NSP rehabilitation standards to be fairly comprehensive, including local code
compliance, LBP compliance, energy efficiency upgrades, and upgrades of other aging components. We want to
do this in a manner that ensures that the new homeowner will move into a housing unit that will be relatively
maintenance free for at least 5-10 years, and will have low operating costs as well.

Can our NSP Rehabilitation Standards allow the installation of energy-efficient washers or dryers, first floor
blinds/shades for privacy/energy efficiency?

Does your program plan to rehab and then sell these houses? I am not sure, but this might give you a little room
to call the equipment part of the equity, or the non-NSP financing, if any. Let me know a little more and maybe we
can find a way to make it work.

Response:
Yes, we plan to rehab and then sell the homes to LMMI eligible homebuyers as their primary residence.

We anticipate that the buyers will obtain their own mortgage financing; and will allow not more than 50% of the
required down payment to come from NSP resources.

It is possible though, that the eligible homebuyer will not be identified until the home is marketed after rehab. So,
we may not know the buyer’s finance package until after the work is completed.

We anticipate using a HERS audit to prioritize energy efficiency measures. Would it make a difference if the
equipment (washer/dryer) was identified as a useful measure in that audit?

You can rely on the statement in the eligibility part of the Notice that says:

        HERA defines rehabilitation to include improvements to increase the energy efficiency or conservation of
        such homes and properties or to provide a renewable energy source or sources for such homes and

                                                                                                      Page 94 of 99
        properties. Such improvements are also eligible under the regular CDBG program. HUD strongly
        encourages grantees to use NSP funds not only to stabilize neighborhoods in the short-term, but to
        strategically incorporate modern, green building and energy-efficiency improvements in all NSP activities
        to provide for long-term affordability and increased sustainability and attractiveness of housing and
        neighborhoods.

However, I think the issue is also that they might be too expensive, and that they can be removed from the
property.

The NSP Notice requires you to set rehab standards and does not say what they should be. So, as far as the
cost-benefit value of high-efficiency washers and dryers, you can justify it on a life-cycle cost basis: they pay for
themselves in lower operating costs.

In terms of their “portability”, if you make clear that these are homes being purchased with equity and private
financing as well, and that therefore the W&D are not part of the rehab, it should work.


What supporting documentation will we need for performing code enforcement using NSP funds? Including
paying inspectors, as well as abatement costs?

Code enforcement is eligible in the NSP program under Eligible Uses A and B because they allow CDBG-eligible
rehabilitation. Code enforcement is eligible under CDBG as part of Rehab, not separately. The regs at 570.202
say:
(c) Code enforcement. Costs incurred for inspection for code violations and enforcement of codes (e.g., salaries
and related expenses of code enforcement inspectors and legal proceedings, but not including the cost of
correcting the violations) in deteriorating or deteriorated areas when such enforcement together with public or
private improvements, rehabilitation, or services to be provided may be expected to arrest the decline of the area.
This means that you can pay salaries and legal costs, but that you cannot pay the costs of repairs, as code
enforcement. The NSP regs limit rehab to the units you are acquiring or rehabilitating. Therefore, the department
is saying that you cannot pay for code enforcement on non-NSP structures. You may have understood it that
way, but I was not clear and wanted to make sure. This is probably what they had in mind when they said in LA
that you would need other sources of funds, like CDBG and other partners in order to operate an intensive effort
in a target area of greatest need.

State Distributions

On this NSP data site:
http://www.huduser.org/publications/commdevl/excel/MN120_LM.xls
Column O contains a “U” or a “R.” What do these mean—I really looked but could not find the information.

In Rows 119-122 it reports on 050217 BG 1 & 2. In the first instance the data has a “R” and then the same CT
BG is reported with a U.

This is a question I received from a grantee and couldn’t answer. There is not a contact listed on the PD&R site.

It’s Urban and Rural portions of the same CT.

The brief description of the U/R distinction is below. It comes from the methodology paper located on the website:

http://www.huduser.org/publications/commdevl/nsp_foreclosure_data.html

Do smaller towns and cities like those in wayne county ohio qualify for grant funds?

Yes, but you will not receive a direct NSP allocation. You must request NSP funds from the State. The Ohio
state contact is: Michael A. Hiler, Office Chief, Housing and Community Partnerships, 77 South High Street, P.O.
Box 1001, Columbus, Ohio 43216-1001, (614) 466-2285, Michael.Hiler@development.ohio.gov


                                                                                                        Page 95 of 99
How much is the allocation for San Luis Obispo County, California? To whom will it be given to administer?
Who is the local coc representative, and how do I contact this persons?

It does not appear that San Luis Obispo received a separate allocation of funds from the Neighborhood
Stabilization Program. Many cities did not, but are eligible to apply to the State of California. The person named
below operates the State’s Community Development Block Grant program. I do not know if the same agency will
be administering the NSP Program, but it’s the only name I have at the state.


The last statement on the attachment indicated that "Davie" (an Entitlement city) did not have enough foreclosure
properties to meet the minimum HUD funding requirements." Please find out how they generated their numbers
from HUD and have staff check the formula. Has anyone called the HUD staff or county? Please provide a
response for council at the council meeting on Wednesday.

Perhaps a letter to HUD and county may be necessary as this will be on the Broward Commission agenda next
week.

Councilwoman Susan Starkey

Good Afternoon City Managers:

On September 26, 2008, HUD announced the allocation for states, counties, and entitlement cities for the
Neighborhood Stabilization Program component of the National Housing and Economic Recovery Act.

In an attempt to coordinate our municipal information, we have calculated a worksheet (attached) outlining the
direct allocation to entitlement cities($51,379,286) and Broward County's plan for its allocation to non-entitlement
cities ($17,767,589 less administrative costs at 10%). The League has also prepared a white paper on the
program outlining some of the important components.

If it would be possible, and as the time is short to prepare your municipal plans for allocation, implementation,
and expenditure, would you advise The League by return email of your city's plan for utilization of these funds?
The sharing of all your ideas, especially, with some of our smaller municipalities, could be quite helpful.

As always, thanks so much for your assistance.

Rhonda Calhoun
Executive Director
Broward League of Cities
115 South Andrews Avenue, Suite 122
Fort Lauderdale, Florida 33301
954-357-7370
954-357-5563 (Fax)
You can review the methodology for these allocations at the following website.
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nspfa_methodology.pdf

It will probably be more productive for you to contact the State of Florida which has received a grant of $91M for
cities like yours that did not receive direct allocations. HUD only made grants to cities which qualified for $2M or
more, recognizing the complexity of administering such programs for smaller amounts.

The state can make grants to cities and counties with foreclosure problems and is in the process of developing its
own method of distribution.


The NSP notice stated that HUD will provide a simplified "crosswalk" of NSP and State CDBG requirements for
state grantee administrators. I believe this link is on page 6 of HUD's NSP Instructions for Grantee Submission
document on the HUD website, but the link is bad. How can I able to access this document?


                                                                                                      Page 96 of 99
There is no longer a need for the crosswalk of NSP/State CDBG requirements and this statement should not
have appeared in the NSP Notice. The original intent of the crosswalk was to advise states about the applicable
federal regulations (entitlement regulations or state regulations) applicable to states when they directly administer
the NSP program. As the notice was finalized it was decided that states would be provided with the flexibility to
use the State CDBG regulations or the Entitlement regulations for certain items. The final NSP notice “strongly
advises” states use the entitlement regulations for recordkeeping and subrecipient agreement provisions, etc.
See Section G “State’s direct action” for more information.

The crosswalk that you mentioned on page 6 of HUD's NSP Instructions for Grantee Submission document on
the HUD website is only a visual aid to help grantees correlate NSP eligible use activities with activities under the
regular CDBG program. The website has been fixed and you should be able to access it now.

How is the state going to be handling the distribution of funds? Are they going to run like the Small Cities
program whereby the cities apply to the state for projects and complete the environmental review and then the
state acts as HUD and releases the funds? Or will it be run like the HOME program where state provides funds
to projects and submits RROF to HUD for release of funds?

Tiered Review Procedure

DECD will conduct a Tiered Review Procedure for projects in aggregate and in accordance with 24 CFR Subpart
B, Part 58.15 to ensure environmental review compliance with 24 CFR Part 58. Subsequent to obligating NSP
funds, subrecipients will be required to complete a Statutory Checklist for each specific property assisted with
NSP funds prior to committing any funds for the property. The costs to complete this activity are an eligible
activity cost.


I am the reentry coordinator, and I learned of the Neighborhood Stabilization Program. I was unable to attend the
planning forum today. My question is, would the reentry program be eligible to submit an action plan? Housing is
a difficult task for a person that has been incarcerated.

The NSP Program awards grants to units of local government and states. Those entities then develop programs
to stabilize neighborhoods with a high incidence of foreclosed and abandoned homes. I am attaching a copy of
the program notice from the Federal Register for further reference.

In your case, a foreclosed home might be reused as a reentry facility, but the city, county, or state would have to
make it part of their program. Then you might be able to receive a sub-grant. Greenville and Richland Counties,
along with the State of South Carolina, are the only entities receiving NSP funding directly. If you are not in one of
those counties, your city or county would have to apply to the state.

It would probably be best for you to contact your city or county to learn whether they are planning to participate
somehow in the state’s program. Every state has a different procedure, so I cannot give you much guidance on
what is happening there. If the local governments are not planning to get involved, you can contact the state to
see if there is a way to seek funding.


I would like to find out all information that I can on this I believe this is something we can do in our community,
please tell me where to get started. (on town board of Waveland, IN)

The attached Federal Register Notice describes the Neighborhood Stabilization Program, which is designed to
assist communities experiencing high rates of foreclosed and abandoned homes. The website below has more
information. NSP grants are awarded to larger cities and states, which will have responsibility for addressing
problems in the balance of the state.
http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

According to a list on that website, the state coordinator for Indiana is: Sherry Seiwert, Executive Director,
Indiana Housing Community Development Authority, 30 South Meridian Street Suite 1000, Indianapolis, IN 46204
(317) 234-3873 –O, (317) 979-7754 –C, sseiwert@ihcda.IN.gov

                                                                                                       Page 97 of 99
Per the NSP notice, states receiving NSP allocations are required to distribute funds without regard to a local
government status under any other CDBG program and must use funds in entitlement jurisdictions if they are
identified as areas of greatest need, regardless of whether the entitlement received its own NSP allocation.

Does this requirement hold true for counties as well? Must a county that will receive a direct allocation of NSP
funds include the entire county jurisdiction when identifying the areas of greatest need and not just the areas of
the county that are outside of other entitlement jurisdictions receiving an NSP allocation? In other words, can a
county exclude other entitlement communities within its boundaries from consideration when identifying areas of
greatest need?

You need to focus on areas of greatest need in some priority order and include all areas of the county in your
considerations. Some you will be unable to assist, perhaps because the need is too great or the market is too
soft, etc. Another consideration could be that an entitlement city is addressing the need. Conversely, maybe with
a joint approach, an infeasible project could become feasible. The whole picture should be clear and should
include all areas. If you decide not to fund those areas, you should have a reasonable explanation. I hope that
helps.

For communities who are non entitlements who must rely on the local governmental entity to apply directly to the
Department of Community Affairs for a portion of the balance of state funds, are there resources or contacts who
can support our efforts to assure that (1) the local governmental entity will actually apply, and (2) that an open
process is conducted prior to that local government's submission of an RFP to DCA, so that non profits, intending
to serve those at or below 50% of AMI can be included in the jurisdiction's application or plan for the expenditure
of the funds?

To find out what efforts the Florida Department of Community Affairs is making to ensure that local governments
on the Treasure Coast are applying for the NSP grant, please contact the DCA directly. You may want to make
DCA aware of the needs of the Treasure Coast. As well, the DCA has posted their plan on their website that will
give you an idea of how they plan to distribute the NSP funding. The contact information is:
http://www.dca.state.fl.us
Janice Browning, Director, Division of Housing and Community Development, 2555 Shumard Oak Blvd.,
Tallahassee, FL 32399-2100, Phone: (850) 488-3644, Fax: (850) 922-5609, Janice.browning@dca.state.fl.us

Today is November 17th, 2008, and I have completed the NSP Substantial Amendment and the SF-424 forms.
However, I am not sure to whom I am to forward this information to ensure that my organization is considered.
Please point me in the right direction.

You should contact Prince George County. They received funds for your area and are the appropriate agency to
contact. HUD does not provide NSP funds to non-profit agencies directly. NSP funds were provided to state and
local governments.


Tax Liens

One of my grantees is asking can they purchase homes that are "tax foreclosures" due to nuisance originated
liens. I have not read anything to say otherwise.

NSP funds can be used to purchase tax foreclosures so long as the jurisdiction that levied the tax is not using
NSP funds to reimburse itself. A similar question and response can be found on the NSP website frequently
asked questions, see “Acquisition and Relocation” section.


The NSP provides for the acquisition of abandoned properties. However, said properties will probably have tax
liens on them. Can I use NSP funds to pay the tax liens?

We have concluded that getting the other taxing entities to waive their liens would be too difficult. The main
concern is that grantees do not receive reimbursement to themselves via NSP.

                                                                                                      Page 98 of 99
Seek further clarification of payment of taxes and other liens due and payable on property acquired with NSP
funds given confusing restrictions noted in previous q/a. When property purchased at agreed price (for NSP, the
price would have to meet discount requirement), acquisition funds are routinely allocated at closing to pay a
variety of existing encumbrances - taxes, liens, HOA dues, judgments, etc. as well as any mortgage(s), with
balance (if any) then disbursed to seller. Taxes are typically prorated between buyer and seller based on tax
payment schedule and closing date. Further, it is not clear if municipalities have legal authority to waive taxes
due. In this example, no funds beyond the agreed acquisition price would be designated for taxes, liens, etc.
Would NSP funds disbursed as noted above be eligible as NSP "acquisition" cost even though the acquisition
proceeds would be distributed for taxes and related encumbrances of the property (with balance disbursed to
seller)?

We regret the confusion that previous statements may have caused.

The Notice prohibits grantees from providing funds to third parties to acquire properties that the grantee has
acquired through tax foreclosures. The concern has been that grantees will use the NSP funds to pay themselves
the back taxes owed. This policy remains in effect, though it does not prohibit payment of other liens or
encumbrances on the property, including taxes due to school districts and other taxing entities.

However, as you suggest, there are other circumstances in which it may be allowable to pay tax and other liens.
Primarily these occur when the property is being acquired from entities other than the grantee, including the
owner or a lender. As you note, such liens, if not dismissed through foreclosure, are negotiated between the
buyer and seller. Thus, if a grantee provided funds to a non-profit housing developer, for example, that developer
could acquire property from a third party and pay all liens (up to the fair market value of the property) including
liens imposed by the grantee.


Timeliness of Use & Expenditure of NSP Funds

When a grantee is administering a NSP activity e.g. acquiring property how do they document that they are
"using" the NSP funds. For example the grantee says in DRGR that it will spend $500K in acquiring abandoned
houses and its will use in-house staff to acquire the homes have they "used/obligated" the funds - therefore
meeting the 18month requirement?

We are interpreting “use” pretty strictly to mean “under contract” or otherwise legally bound to a defined project.
Simply allocating the funds by contract to another entity (a non-profit, for example) is not sufficient. The money
has to be directly committed to an end use, such as a purchase contract for a specific property or group of
properties, a signed rehab contract, etc. It does not have to be expended for four years but must be obligated in
18 months.


Today I received an email that says grantees need to draw NSP funds under the VRS system if they need funds
before 31 Dec 08. Also they need to work w/the local HUD field office to get VRS access.

Following is a link where the VRS access form is available:
http://www.hud.gov/offices/adm/hudclips/forms/files/27054.pdf

The above form asks for a program code in block 5a. What code should I tell my grantees to enter for the NSP
program?

Let me know if you have any questions about this, or if you’re not the person to whom I should be directing this
question.
I spoke with John Swanson about this in the course of discussing some other issues. We both thought that the
likelihood of a community requesting funds before Jan. 1 was almost non-existent. This is because HUD has 45
days to review and approve applications, and review guidance has not been issued yet. I recognize that they will
be anxious to get reimbursed for their admin and planning expenses, but think that they will not be in a position to
do so before the first of the year.


                                                                                                      Page 99 of 99

				
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