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Cities struggling to spend federal money for foreclosed homes
A foreclosure sign in front of a home in Miami Beach, Fla.
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Kai Ryssdal: Here's yet another way the housing industry's taking it on the chin. Some of the cities and states that've been hardest hit by the real estate bust could wind up forfeiting about a billion dollars in federal stimulus money. Congress set aside a pot of cash a couple of years ago buy up foreclosed and abandoned properties around the country. The use it or lose it deadline is this September.
Marketplace's Jeff Tyler reports.
Jeff Tyler: Kern County, California, can spend up to $11 million buying foreclosed properties. But it's not easy.
Lorelei Oviatt: It has definitely been a windfall that we have had to work hard to implement.
Lorelei Oviatt is Kern County's director of Planning and Community Development. So far, her office has allocated about 37 percent of available funding to buy and refurbish homes in hard-hit neighborhoods. That's the aim of the program -- to keep communities from becoming blighted. Other places are also struggling to spend their funds fast enough.
Mercedes Marquez with the Department of Housing and Urban Development understands the challenge.
Mercedes Marquez: We have asked communities in 18 months to stand-up a brand new business and engage with lenders and servicers, who also are having difficulties.
And local governments have had trouble competing with private investors. Marquez says that private money would be welcome if the buyer were interested in fixing these properties.
Marquez: Large blocks of site-unseen housing are being purchased and just kept. And are in the way of a city making a huge change, because the house just sits there.
But Lorelei Oviatt in Kern County welcomes private investment.
Oviatt: I think that the problem is so big that we need all of it. I think we need the tax dollars, and we also need the private sector to move forward.
Some cities and states are moving forward faster than others. New Orleans has failed to allocate any of the $3 million it was promised. After the deadline, unused money will be redistributed to other communities.
I'm Jeff Tyler for Marketplace.
Wise towns ought to consider buying up some of the inventory sitting available, fixing up the homes, and selling the homes themselves, keeping the land on which they sit, and collecting market-level land rent. In this way, the housing would become affordable to many more people who otherwise are forced into the rentals market.
The land rent would provide a solid revenue for the municipalities smart enough to undertake this approach.
Houses depreciate at roughly 1.5% per year. This is not too far off of the mortgage payoff schedule. Not every lender would be willing to participate in such a program -- but the amount that the typical homebuyer would need to borrow would be considerably less than they'd be borrowing to also purchase the land.
Something to think about.
