by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
HUD announces it’s “First Look” program today:
The National First Look Program is a first-ever public-private partnership agreement between HUD and the National Community Stabilization Trust (Stabilization Trust). In collaboration with national servicers, Fannie Mae, and Freddie Mac, the First Look program is intended to give communities participating in HUD’s Neighborhood Stabilization Program (NSP) a brief exclusive opportunity to purchase bank-owned properties in certain neighborhoods so these homes can either be rehabilitated, rented, resold or demolished.
On the surface, it sounds idealistic. Who would be against local stakeholders being afforded the opportunity to improve their communities? Don’t private investors do that, though? Maybe this program is targeted at those properties which even the scavengers avoid.
HUD’s NSP grantees, which include state and local governments and non-profit organizations, often find themselves competing with private investors for real estate-owned (REO) properties, which can hinder their efforts to stabilize neighborhoods with high foreclosure activity. With today’s announcement, HUD and the Stabilization Trust, working with national servicers, Fannie Mae, and Freddie Mac, will standardize the acquisition process for NSP grantees, giving them an exclusive option to purchase foreclosed upon homes in certain targeted neighborhoods.
Huh? Competition is the engine which drives a functioning market. This means that a government agency will specifically eliminate competition and deliberately sock banks with a loss. How is THAT good?
HUD’s Neighborhood Stabilization Program was created to address the housing crisis, create jobs, and grow local economies by providing communities with the resources to purchase and rehabilitate vacant homes. NSP grants are helping state and local governments, as well as non-profit developers, acquire land and property; demolish or rehabilitate abandoned properties; and/or offer downpayment and closing cost assistance to low- to middle-income homebuyers. Grantees can also stabilize neighborhoods by creating “land banks” to assemble, temporarily manage, and dispose of foreclosed homes. To date, HUD has allocated nearly $6 billion in funding to state and local governments and non-profit housing developments. In the coming weeks, HUD will allocate an additional $1 billion in NSP funding, which was provided through the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Meet the new boss, same as the old boss. Here we go again.
Michael Cook says:
You cant force banks to sell, so why wouldnt this end up being a database of cast off properties. If I am in the dispositions department, I would sell my best properties to the market and anything that didnt sell I would attempt to put through this process.
I could see a market for these homes. Non-profits that dont mind taking a $10k – $15k loss on each property could provide some great low income housing in tough neighborhoods that might never be rebuilt. Local governments dont have the money to tear these properties down, so they become havens for crime. And no sane developer is going to take a $10k – $15k loss to help the community, so in comes the non-profit.
You can certainly argue against the government funding these programs, but I think this actually could work exactly as its intended.
September 2, 2010 — 10:50 am
Brian Brady says:
You are describing a “last look” program, Michael. This is different. From the first paragraph:
“First Look program is intended to give communities participating in HUD’s Neighborhood Stabilization Program (NSP) a brief exclusive opportunity.”
That’s not allowing banks to get the highest and best offer.
September 2, 2010 — 11:21 am
Michael Cook says:
What incentives do banks have to participate? Again, they cant force them to sell at a discount, can they??? I would feel nervous if they could.
September 2, 2010 — 12:08 pm
Brian Brady says:
“What incentives do banks have to participate?”
I don’t know. From a release:
“Participating servicers include Bank of America, Chase, Citi, Deutsche Bank, GMAC, Nationstar Mortgage, Ocwen Financial Corp., Saxon Mortgage Services, U.S. Bank and Wells Fargo. The program also includes Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).”
I know HUD is “funding” it to the tune of $6 billion so perhaps you and I are funding the losses
September 2, 2010 — 12:23 pm
Jim Klein says:
“You cant force banks to sell…”
You gotta be kidding. If you’re starving and I offer you all the money you want at 0%, you’ll be very cooperative with whatever I propose. When I convince you that your very life depends on whatever makes me happy, you’ll see to it that I stay happy, any objections notwithstanding.
You could redouble these claims if money were literally your lifeblood, as it is for a bank. Besides, our entire evolution currently is the attempt to demonstrate that any claim that begins with, “You can’t force…” is false.
September 2, 2010 — 6:43 pm
Al Lorenz says:
I was really irritated about this yesterday as well.
I don’t think banks want to sell for less. I don’t think they wanted to do CRA loans. Remember, the current regime is a total thugocracy. These banks took bailouts. I don’t think they have a choice.
The other option is that they offer the properties at a price higher than they think they will get on the open market so those with your tax dollars end up paying a premium to the banks…
September 3, 2010 — 9:43 am
Michael Cook says:
“You gotta be kidding. If you’re starving and I offer you all the money you want at 0%”
Last time I checked most banks were definitely not starving. After pigging out on TARP money, most are in great shape and doing their very best to get the government out of their books.
I think your argument would have been correct a year ago, but I think the opposite now. I think banks want to avoid being a tool of the government by any means necessary.
September 3, 2010 — 1:28 pm
Brian Brady says:
“Last time I checked most banks were definitely not starving.”
Oh, I don’t know. This will be the second time in four years that I smelled a rat.
This article scares me about the viability of most money center banks:
http://www.nakedcapitalism.com/2010/09/fannie-to-crack-down-on-foreclosure-delays.html
When that shoe drops, losses will be staggering…again
September 3, 2010 — 2:19 pm
Jim Klein says:
“Last time I checked most banks were definitely not starving.”
Money at 0% can sure work wonders, eh? I don’t want to argue with you Michael, and especially not here on this topic. If you want to understand how banks are doing, learn about the yield curve, book value and P/E ratios. Classically, banks were in the business of borrowing short and lending long. These days they’re in the business of borrowing short. Hey, it’s nice work if you can get it! [Alright, that’s an oversimplified dig.]
If you want to know whether or not they’re tools of the government, learn about FinReg and the kagillion rules and regs that preceded it.
Banks will do as they’re told, and so will you and I. Until we don’t.
September 3, 2010 — 2:39 pm
Brian Brady says:
“Hey, it’s nice work if you can get it! [Alright, that’s an oversimplified dig.]”
That’s no dig, it’s a definition of the problem, Jim.
I’m not going to whine too much because it’s “nice work” but, from a bird’s eye view, this arbitrage model (borrow subsidized money short to lend guaranteed money long) isn’t sustainable.
September 5, 2010 — 9:11 am