States, cities ready to move on housing aid

States, counties, and cities with high home-foreclosure rates – now poised to reap a windfall in federal aid to help them cope with the crisis – are busy laying plans for what, exactly, they will do with the money.

So far, their blueprints are as varied as the places themselves. Some plan to use the money for demolition, some for rehabbing abandoned properties. Some even envision using the one-time bonanza to try to prevent future foreclosures.

The money, $4 billion in all, is part of a larger housing rescue package that Congress approved and President Bush signed late last month. It will go to America's hardest hit communities – and even some that aren't so hard hit.

States and cities consider the funding a key to blunting the effect of foreclosures, seen in abandoned properties, inadequate rental housing, and deteriorating neighborhoods. For many locales, it will add leverage to their own efforts. Some community activists hope the money will also help to moderate home-price declines.

"For many communities impacted by homes already foreclosed on, this was viewed as the linchpin to turn the tide around," says David Berenbaum, executive vice president of the National Community Reinvestment Coalition in Washington. "It will augment state, private, and partnership funds."

Originally, the Bush administration opposed the $4 billion in block grants on grounds it would help lenders, not home-owners. Congress, however, was heavily lobbied by the US Conference of Mayors, including Miami Mayor Manny Diaz, conference president. "This piece was important to us at a time when we have declining revenues because of the economy and increasing foreclosures," Mayor Diaz said in a phone interview.

The US Department of Housing and Urban Development (HUD) is expected to unveil the rules that govern use of the money by Sept. 26. "Congress said to come up with the areas with the greatest need, to get the money where it is needed most," says Brian Sullivan, a HUD spokesman in Washington.

To determine the places most in need, Congress gave a loose definition: Look at a recipient's number and percentage of foreclosures, subprime mortgages, and defaults and delinquencies.

Among the cities thinking up ways to use the money, Baltimore intends to use some funds to get control of the inventory of foreclosed homes. It saw a 33 percent jump in foreclosures last year and is looking at a higher rate this year.

"We don't want speculators to come and do bottom-feeding and buy up this property," says Paul Graziano, the city's housing commissioner.

Mr. Graziano wants Baltimore to partner with groups such as the St. Ambrose Housing Aid Center, which develops affordable housing. The nonprofit recently came to the city looking for $1 million to buy houses banks had repossessed. "I said, 'I don't have the money,' " says Graziano. "Now, we're eagerly awaiting the money."

Cleveland may use the bulk of its money to demolish houses in blighted areas, says City Councilor Anthony Brancatelli, who has long been involved in affordable housing issues. "It starts with eliminating condemned and distressed properties that create negative value for property owners," he says. "We're looking at demolition as a way to keep people in homes."

Many distressed properties in Cleveland are small 900-square-foot houses. Mr. Brancatelli would like to see those properties combined so that a 2,000-square-foot house could be built. "With this money we can reshape neighborhoods and plan more thoughtfully," he says.

Unlike Cleveland, Trenton, N.J., does not expect to use the funds for demolition, says Mayor Douglas Palmer. Rather, he envisions using some of them to buy foreclosed properties, rehabilitating them and restoring the copper wire that has been ripped out. "Or we may try to find a way to provide a soft second mortgage so families can keep [their homes]," he says. (A soft second mortgage can be a subsidized loan for low-income residents, perhaps interest-free for several years.)

If the property is fixed up, Mayor Palmer envisions the city spending money to make the homes more energy-efficient. "This is an opportunity to make the homes green," he says.

In Miami, Diaz envisions the city using some funds for the police, reasoning that additional police activity is related to abandoned properties. "We would like HUD's rules to be flexible," he says. "Who knows better than a mayor or a housing commissioner how the money should be spent, compared to someone in Washington who has no clue about conditions in your city?"

Some states will receive funding even though they don't have many foreclosures. The new law gives every state a minimum 0.5 percent of the total pool of money.

In Vermont's case, that minimum amounts to $20 million. "To get $20 million is a pretty big deal for our state," says Molly Dugan, interim commissioner of housing and community affairs. "We don't have neighborhood after neighborhood of abandoned housing. And we don't have a lot of subprime mortgages."

But Vermont residents will face large heating bills this winter. "They have to make a choice: Which do I pay this month, the mortgage or the heating bill?" she says. "I am not saying we will use the money to fill up oil tanks, but we have to somehow figure out a way to lower the risk of future foreclosures."