HousingPolicy.org Forum

John O'Callaghan of the Atlanta Neighborhood Development Partnership (ANDP) will be discussing ANDP's neighborhood stabilization pilot program in an upcoming installment in the Federal Reserve Bank of Atlanta's Foreclosure Response podcast series. The podcast, available for download on December 11, describes the pilot program, which tests strategies to stabilize neighborhoods, and how this program has informed their NSP activities. After you have listened, join us on the Forum on Monday, December 14 from 2 - 4:00 p.m. EST (11:00 a.m. - 1:00 p.m. PST), to get answers to your questions about the podcast.

  • Listen to the podcast: This latest installment in the Federal Reserve Bank of Atlanta's Foreclosure Response podcast series will be available for download beginning on Friday, December 11.

  • Interact with the speaker: On Monday, December 14 from 2 - 4:00 p.m. EST ANDP President and CEO John O'Callaghan will be online to answer your questions. All questions should be posted to this thread by pressing the Add Reply button. You are welcome to post at any time leading up to or during the online Q&A session. Questions will be answered on a first-come, first-served basis until time runs out, so post early to be sure yours is addressed.

Note: You will need to refresh your browser from time to time to see new responses as they are added.

About the Foreclosure Response podcast series
The Foreclosure Response podcast series is made available by the Federal Reserve Bank of Atlanta. Through interviews with experts on various facets of foreclosure - from neighborhood impacts to loan modifications to new strategies - listeners will be engaged in understanding the problems and advancing solutions. Each week, beginning September 24, 2009, and continuing for more than ten weeks, a new interview will be released. HousingPolicy.org is partnering with the Federal Reserve Bank of Atlanta to offer online Q&A with the speakers.

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Replies to This Discussion

For those who haven't heard the podcast yet, can you provide some background about your pilot program?
In March 2008, ANDP’s Board of Directors made a strategic move to focus its affordable housing efforts on re-stabilizing neighborhoods severely impacted by vacant, foreclosed homes. ANDP has been allocated $18.3 million in NSP 1 funding from six Metro Atlanta government partners. These funds should enable us to directly acquire, rehab and repopulate 140 vacant and foreclosed homes, and provide second mortgage financing to help reoccupy an additional 130 homes during the next 12 to 14 months.

Our goals are to:

(1) Connect with Cities implementing best practices and test our plan with a pre-NSP 6 home pilot. This pilot provided us an oppoturnity to test other goals listed below.

(2) Leverage NSP subsidy through $9.5 million in private financing provided by The Housing Partnership Network (HPN) Mercy Loan and the Self-Help Venture Fund.

(3) Achieve efficiencies and scale by directing the efforts of third party service providers that specialize in acquisition, property inspection, construction, leasing and sales, homeownership and lease purchase counseling, and property management.

(4) Reduce operating costs through the greening of homes and build value through exterior landscaping.

(5) Use revolving subsidy in the form of a 0% second mortgage loan for home buyers. The use of a 0% second mortgage allows local governments to reuse the NSP funds and develop a permanent pool for affordable homebuyer assistance funds.

(6) Partner with local neighborhoods, their residents and supporting organizations to ensure stabilization in jobs, education, and supportive services. In short, we want to serve the families in the homes we develop and provide mortgage assistance to AND bring up values and stabilize the surrounding neighborhood.
In the interview, you note that even before NSP, you decided to "take on" fifty homes in neighborhoods that ANDP had worked in before and that were empty following foreclosure. Can you talk a little more about the process that you used to acquire those homes - what tools you used, obstacles faced, and how you resolved those obstacles?
Yes, we made a decision to do 50 homes before NSP passage seemed likely. Our goal was to raise $ 1 million of charitable capital to provide $20,000 of equity per home. As we were finishing our best practices research, NSP was passed. We decided to do a more limited 6 home pilot to test systems for NSP. The thought was that we would use NSP funds thereafter to complete or exceed the 50 home pilot.

For our pilot, we selected two neighborhoods impacted by foreclosure. One was in the City of Atlanta. The second was in neighboring DeKalb County. We worked with a private real estate firm to find foreclosed homes at an affordable price that needed limited rehab work. We tried to acquire homes for $40,000 or less and complete a rehab that brought the total cost in at $80,000 or less.

We started acquiring homes in April. At that time, the market was flooded with REOs and we could find great homes at great values. Now, there are fewer REOs on the market even though Metro Atlanta's Foreclosure Filing rate remains among the top nationally. The difference is the emergence of large investor pools as competition for REOs in the marketplace.

One key issue was securing the construction acquisition capital. The Housing Partnership Network's Loan Pool really stepped up to make this work. Later, Mercy Loan Fund joined the team to augment our capital needs. The final financing piece was a permanent lease purchase product provided by Self Help Ventures Fund.
Thank you for the thoughtful response. You mentioned the role of investors in acquiring REO properties. Do you have any thoughts about the implications of a growing investor presence in the marketplace? Does this change ANDP's strategy in any way?
Investors can be good and Investors can be bad. Generally, it is better to have homes occupied than not. The worst investors buy a property and keep it boarded up, waiting to flip it later when the market returns.

I worry a great deal about absentee investors who are acquiring properties at low rates, doing little to no rehab and then rent their homes and don't take care of them. There is money to be made at this. Also, neighborhoods need balance.between rental and home ownership. Many neighborhoods are losing their homeowners.

We are having to compete more for properties with the above two investor classes. The National Community Stabilization Trust which provides a first look at properties to non-profits and local governments is a great portal for us. We get to review properties before the investors and can target homes critical to our stabilization efforts.

Also, we are placing even more focus on providing home ownership opportunities through direct purchase or lease purchase. Our neighborhoods need more homeowners.

Finally, we are working with some local based investors who want to make profit but also want to do the right thing for the community. They are local based and have local reputation risk. I'd rather these investors buy homes than absentee landlords.
How you do you find lease-purchase tenants for the properties that you acquire? Have you leased any properties back to the previous owners, or are these typically new renters?
We use third party, non-profit housing counselors and local Realtors to help us identify lease purchase tenants. Our pre-NSP homes are offered for sale OR lease purchase.

The homes we acquired were long vacant so we have not yet had a chance to lease them back to a prior owner.

Four of our six homes have been occupied through our lease purchase program. Generally, they are families or individuals (who are currently renting) wanting to own a home but who don't have credit to get a first mortgage loan at this time.
Does ANDP only acquire properties when a family is lined up to move in to the home? If not, how do you ensure that vacant properties remain well-maintained?
We would love to have a potential buyer or lease purchase tenant lined up before we acquire a home, but this is difficult to do. We usually will not have that luxury for our NSP homes so we took the risk that we could lease or sell the home prior to property acquisition.

We do work on marketing throughout the acquisition and rehab period. Most of our homes were sold or leased within a few weeks after rehab was completed. We have one home that is just hard to move.

We have invested in neighborhoods which are reeling from foreclosure vacancies, but were stable before the foreclosure crisis hit. These neighborhoods are relatively safe and we have not seen much vandalism. We work to maintain the home inside, and importantly out, until a new resident moves in.
In the interview, you mention place-based subsidies that are used to provide long-term affordability in specific homes purchased through your pilot NSP. Can you provide some examples of these subsidy programs? Are there any other mechanisms you are using or have considered to control or prevent gentrification in these neighborhoods you are investing in?
The City of Atlanta has several place based soft second mortgage programs to provide affordability for the initial buyer.

We were prevented from FHA rules from directly providing (beyond the City's programs) a soft second for our Pre-NSP homes (we would have liked to keep our 20% equity in the home as a soft second).

The NSP program heavily relies on the use of soft seconds to promote affordability. The best programs provide 20% or more in soft seconds which alleviate the need for private mortgage insurance.

These programs allow require that soft second be repaid (should the home later sell for profit). The proceeds of the repaid soft seconds form what is essentially a long term housing trust fund. The next low income purchaser will have access to mortgage assistance that will make a purchase affordable to them.

For the most part, home price is not the barrier to affordability now in metro Atlanta. The barrier is access to first mortgage capital.

As we recover from the economic downturn, it will make sense to develop solutions both at the system level (enough subsidy to write down cost wherever) and at the location (shared equity or other).


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