States divert foreclosure prevention money to demolitions

Five homes in Detroit were demolished last week, using money originally intended to help people avoid foreclosure.

The Treasury Department has changed the rules on the Hardest Hit Fund, a program meant to help people hit by the housing crisis stay in their homes, allowing states to use some money from the $7.6 billion foreclosure prevention program to demolish homes instead.

The first five houses came down last week, in the Marygrove neighborhood of Detroit.

It’s a prayer being answered,” says Velma Lewis, who moved to the neighborhood almost 30 years ago. Back then, the streets weren’t dotted with abandoned homes. No one kicked in her door if she left town, like they do now.

When I moved here, it was a beautiful neighborhood. I never thought that I would retire to this here. So I am elated,” she says.

Michigan and Ohio have changed their contracts with the Treasury Department so they can use foreclosure prevention funds for home demolition. Michigan has diverted a $100 million into demolition. That’s a fifth of its money from the Hardest Hit program, part of the Troubled Asset Relief Program, or TARP. The money will be used to tear down 7,000 vacant homes.

Here we were assisting homeowners to stay in their homes, but then, many of these communities had so many blighted properties that homeowners would throw their arms up and say, ‘I’m never gonna get value out of this house, why am I doing this?’” says Mary Townley, director of homeownership at the Michigan State Housing Development Authority.

Michigan officials say blight leads to abandonment. It invites crime and drives down property values in neighborhoods where the 13,000 homeowners they’ve already helped are trying to hold on. They say demolishing derelict homes is foreclosure prevention.

But demolition wasn’t the intent of the Hardest Hit program, says housing activist Bruce Marks of the Neighborhood Assistance Corporation of America.

It is a matter of priorities,” he says. “And the first priority is to save the many tens of thousands, hundreds of thousands of homeowners who want to keep their homes, who want to stay in their homes, who do not want to be foreclosed on and to be forced out.”

Over at the Treasury Department -- the gateway to TARP -- the chief of the Homeownership Preservation Office, Mark McArdle, has a different take.

McArdle says most of the Hardest Hit Fund will still go to keeping people in their homes.  Only $160 million is slated for demolitions so far (maybe more if Indiana follows suit).

If you do one without the other, you might be making a short-term investment,” McArdle says. “You want to make sure that you make a long-term investment in these communities and these homeowners so not only is that one family able to stay in their home, but they long term can stay in their neighborhood.”                 

McArdle says about $2.5 billion has been claimed from the fund so far. The states have through 2017 to get the other $5 billion to struggling homeowners before it disappears.

About the author

Kate Davidson is a regular contributor to Marketplace.

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