Major mortgage lenders will now give state and local governments the right to buy foreclosed properties before they go on the market, giving them “a leg up” on speculators who have often thwarted local redevelopment efforts, Housing Secretary Shaun Donovan announced Wednesday.
The First Look program will give communities a 48-hour heads up on foreclosed properties and the ability to buy them at a 1% discount, Donovan said. The effort is intended to help improve the $7 billion Neighborhood Stabilization Program, he said.
“First Look is good for our housing market because it will bring much-needed speed” to the sale of bank-owned homes, Donovan said. Data show that vacant homes are more than three times more destructive to neighboring home values than those early in the foreclosure process.
USA TODAY reported in July that more than $1 billion in Neighborhood Stabilization Program funds were unspent two years after Congress authorized the program. Short staffing and confusion over rules were partly to blame, but local governments also said lenders wouldn’t deal their foreclosed properties.
Often, cities can’t move as quickly as private companies in buying homes especially in highly visible areas or where they’re trying to assemble multiple properties in a land bank.
“You can’t be successful in neighborhood stabilization unless you control all the pieces on the chess board,” said Craig Nickerson, president of the National Community Stabilization Trust, which runs the clearinghouse.
The participating mortgage lenders account for 75% of foreclosed homes, Donovan said. They include Bank of America, Chase, Citibank, Wells Fargo and Freddie Mac.
The banks won’t offer all their foreclosures. “We’re not going to run all our inventory through this engine,” said Steven Nesmith, senior vice president of Ocwen Financial Corp. He said about 20% will be offered to governments and non-profits.
The plan might come too late to help communities involved in the first round of funding. Many have just days to write contracts or risk losing their federal funding. In all, 143 communities have less than a month to spend their federal money. If they don’t, the Department of Housing and Urban Development will freeze their unused funds as much as $354 million nationally and could take the money back.
Palm Bay, Fla., has until Friday to spend its $5.2 million, and might fall $200,000 short. “Just with our purchasing requirements, we do not move as quickly as the private sector,” said David Watkins, the city’s growth management director.
“If First Look had been available from the beginning, he said, “we might be at least three or four months ahead of where we are now.”