neighborhood stabilization program (nsp) basics...what is nsp? • created the neighborhood...

U.S. Department of Housing and Urban Development

Neighborhood Stabilization Program (NSP) Basics

March 3, 2015

Community Planning and Development

Presenters and Q&A Format• Presenters

– Hunter Kurtz, HUD

– Paul Patterson, HUD

– Njeri Santana, HUD

– Lawrence Reyes, HUD

– Les Warner, ICF International• How to ask questions

– Questions Box: May enter question in question box -- will read question aloud and answer during allotted Q&A session

– Ask audible questions: If listening over phone, press in your audio pin provided (#xx#). Raise your hand and we will unmuteyour line

2U.S. Department of Housing and Urban Development • Community Planning and Development

Agenda

• What is NSP?

• Recap of key NSP rules & requirements

– Steps in NSP life cycle

– Actions post close-out

• Lessons Learned

• Questions


Resources • NSP Notices (referenced throughout in red)

• Policy Alerts (referenced throughout in green). See top ten policy alerts referenced at end of presentation

• Toolkits

• OneCPD website -- https://www.hudexchange.info/nsp/

• HUD Field Office staff

• TA request and AAQ system


What is NSP?• Created the Neighborhood Stabilization Program to help

cities, counties and states address abandoned, foreclosed, vacant units created by mortgage foreclosure crisis

– Three programs NSP1, NSP2, NSP3

• HUD provided money to about 250 local governments and all 50 states

• Funds must be used to finance, buy, rehab, and/or resell homes and rental units, and economic development

• Programs must target low, moderate, middle income (LMMI) households


15 Key NSP Program Requirements


1• Location in area of greatest need & covered under

Action Plan

2 • Activity/project administration

3 • Activity/project timeliness

4 • Property type

5 • Eligible uses

6 • National objective

7 • Low income targeting

15 Key NSP Program Requirements (cont)


8 • Acquisition requirements

9 • Feasibility & underwriting

10 • Property standards

11 • Other Federal Requirements

12 • Financial management

13 • Project completion requirements

14 • Affordability period

15 • Reporting, documenting results, close-out

• See FR notices:

– 6/19/09; 4/9/10; 10/19/10

• Projects must be located in area of greatest need based on: – Percentage of home foreclosures– Number of homes with sub-prime loans– Areas likely to see rise in rate of foreclosures– May also include other local factors

• Areas defined by grantee in Action Plan• Target areas should also be defined in agreements with

subrecipients/state recipients/developers• Funded activity types must also be described in Action Plan

– Post close-out will be covered by grantee’s Con Plan8U.S. Department of Housing and Urban Development • Community Planning and Development

1 Location In Area Of Greatest Need & Covered Under Action Plan

• See Policy Alert: 5/18/12• Many options for administration & development:

– Agency staff– Subrecipients– Developers– Contractors– See Policy Alert: 11/16/11

• Can have mix of administrative approaches• Contractors must be procured; subrecipients & developers do

not need to be procured– See Policy Alert: 6/1/12

• All partners must be under written agreement with grantee9U.S. Department of Housing and Urban Development • Community Planning and Development

2 Activity/Project Administration

• Paying for admin & delivery costs:– Grantees & subrecipients can charge admin costs up to 10%

of grant plus program income– Grantees & subrecipients can also charge program delivery

costs• Cannot earn profit or developer fee

– Developers & contractors only charge actual project costs –can include soft costs such as appraisal, market study, permits, architectural, builder’s general requirements or overhead, fees, etc.

• Assess all costs for eligibility, reasonableness & tie to NSP– Timesheets required for labor costs


2 Activity/Project Administration (cont)

• Expenditure due dates complete for NSP1 and NSP2

– NSP1: Must have expended 100% within 4 years

– NSP2: Must have expended 100% within 3 years

– NSP 2 funds must be expended by September 2015 or lost

• NSP3: Must expend:

– 50% was required within 2 years (March-April 2013, depending on grant date)

– 100% within 3 years (March-April 2014)

• Program income expenditure counted toward goals11U.S. Department of Housing and Urban Development • Community Planning and Development

3 Project/Activity Timeliness

• See Policy Alert: 12/3/09

• Only three possible property types can be acquired or rehabbed under NSP:

– Foreclosed:• 60 days delinquent under Mortgage Bankers of

America delinquency calculations and owner notified • Property owner 90 days or more delinquent on tax

payments• Foreclosure proceedings initiated or completed• Foreclosure proceedings complete, title transferred to

intermediary that is NOT an NSP grantee, sub, contractor, developer, or end user


4 Property Types

– Abandoned:• Mortgage/tax/tribal leasehold no payments 90 days

• Code inspection determines not habitable and no corrective action within 90 days

• Subject to court-ordered receivership/nuisance abatement or state definition of abandoned

– Vacant• Unoccupied structures or vacant land that was once

developed

– When property meets both foreclosed & either abandoned or vacant definitions, grantee must treat as foreclosed


4 Property Types (cont)

• Which property types can be demolished under NSP?– If demolition is end use, MUST be blighted

• Can occur with and without acquisition– If will rebuild housing:

• Can be considered part of cost of rehab or new construction

• See Policy Alert 3/14/13


4 Property Types (cont)


Dilapidated Properties Before NSP

• See Policy Alert: 12/11/09• Five possible eligible uses A – E

– Can combine uses in a project

– Describe uses in Action Plan

• Use A: Financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties

• Use B: Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties


5 Eligible Uses

• Use C: Land banks for homes and residential propertiesthat have been foreclosed upon– Must operate in specific defined area – 10-year reuse plan (i.e., must meet national objective)

• Use D: Demolish blighted structures – NSP2/NSP3 can only use 10% funds unless more authorized

• Use E: Redevelop demolished or vacant properties– Under NSP2/NSP3 all must be related to housing

• Ineligible: Foreclosure prevention; Demolition only of non-blighted structures; Acquisition of property or structures that are not abandoned, foreclosed or vacant


5 Eligible Uses(cont)


St. Petersburg, FL Before and After

• See Policy Alert: 8/16/12• All NSP activities must meet a national objective

– Defined differently than CDBG

– Low/moderate/middle income (LMMI) = 120% of median

– “Slum/blight” and “urgent need” not allowed

– Use LMMI housing national objective, area benefit or limited clientele, depending on activity

• LMMI job creation national objectives now allowed for mixed use activities creating employment


6 National Objective

• LMMH:

– A single-unit structure must be occupied by LMMI household

– In a duplex, one unit must be occupied by an LMMI household

– For structures with three or more units, 51% of the units must be occupied by LMMI households

• LMMA: use for demolition and public improvements in NSP1 or economic development and land bank activities (prior to end use)

• LMMC: Use for special needs projects

• LMMJ: job creation – job held by or made available20U.S. Department of Housing and Urban Development • Community Planning and Development

6 National Objective (cont)

• 25% NSP award amount must create housing for low-income residents (at or below 50% of area median income, or AMI) – known as LH25– 25% requirement applies to both original grant amount and

program income– 25% of total funds, not 25% of beneficiaries or units– Shelters do not count – group homes may count depending

on how community has defined these units– Demolition does not count towards LH25

• Does not apply to each activity separately


7 Low Income Targeting

• Several acquisition requirements apply:– If foreclosed:

• Must do appraisal within 60 days of final offer• Must buy at 1% discount• Does not apply to abandoned or vacant units

– Tenants must receive tenant protection notice

– Property owner must receive voluntary sale notice

– Tenants may be covered by Uniform Relocation Act


8 Acquisition Requirements

• NSP does not impose specific underwriting criteria

• However, grantees must ensure investments are reasonable– Use prudent written underwriting standards– Underwrite projects to survive term of affordability

period– May wish to use HOME subsidy layering criteria or

NSP toolkits as guidance for rental projects– For homebuyer projects look at:

FHA/Fannie/Freddie front end ratio, back end ratio, and LTV


9 Feasibility & Underwriting

• NSP1, NSP2, NSP3 must comply with local codes, laws, requirements

• NSP2 must follow application energy standards

• NSP3 must also comply with mandatory green rehabilitation and new construction standards– Must meet Energy Star standards

• Grantee may impose additional requirements

• Establish inspection and work specifications procedures in order to ensure compliance


10 Property Standards


Columbus, OH Before and After

• Several key other federal requirements may apply to NSP projects:

– Environmental review

– URA and tenant protections

– Davis Bacon labor standards

– Lead based paint

– Section 3

– Fair housing and equal opportunity, including Section 504 handicapped access requirements

• Applicability depends on project & entity

• NSP3 must also comply with vicinity hiring requirement26U.S. Department of Housing and Urban Development • Community Planning and Development

11 Other Federal Requirements

• Key OMB circulars and regulations apply:

– A-87: Cost reasonableness and eligibility

– A-133: Audits

– Part 85/Part 84: Financial management systems and procurement

• Expenditures & outcomes tracked in DRGR

• Program income creates on-going financial management obligations


12 Financial Management

• See Policy Alert: 7/13/11, NSP 2 Waiver Concerning Program Income 2/02/15

• Program income (PI) = gross income received by the grantee or subrecipient from the use of program funds:

– Proceeds from sale/lease of property acquired, rehabbed, redeveloped with NSP

– Principal and interest on NSP loans

– Recapture of home sales under affordability agreements

– Interest on program income pending use

– Repayments of liens placed on privately owned property that was demolished using NSP money

• Developers do not earn program income28U.S. Department of Housing and Urban Development • Community Planning and Development

12 Financial Management (cont)

• PI is earned in perpetuity

– Number of revolutions does not matter

– Date of receipt does not matter – PI received after end of NSP remains PI

– PI earned after NSP grant closeout generally follows NSP rules with some exceptions. Some grantees may follow alternative rules (see closeout guidance for further guidance)

– Grantees can decide whether to allow subs to keep PI or return to grantee; grantee remains responsible for tracking PI held by sub



• Must re-use PI for eligible NSP use, as applicable– NSP PI must be used for NSP eligible uses

meeting a national objective

– Must meet LH25 requirements

– Must also meet all applicable cross cutting other federal requirements (Davis Bacon, environmental, LBP etc)

– 10% can be used for program administration and planning



• PI from each program – NSP1, NSP2, NSP3 – must be tracked separately

– Must use each according to its program rules

– NSP1, NSP2, NSP3 program income can be combined in a project IF project meets rules of all applicable programs

• Track and report use of PI in DRGR until close-out



• Homebuyer purchase price must be “affordable” as defined in Action Plan– Purchase price limitation does not apply to rental

properties but they must be affordable to tenants

– Sale to assisted household cannot exceed grantee cost to acquire, redevelop, rehab

• Can include grantee’s direct and activity delivery costs

• Cannot include maintenance costs in sale price

• Should inspect units for compliance with standards• Document national objective• Report program outcomes in QPR/DRGR


13 Project Completion Requirements

• Different approaches for homebuyer v. rental

– See Policy Alert on homebuyer: 3/3/09

• For each homebuyer, up front, grantee must select compliance approach during period of affordability

• HOME rules are safe harbor

• Homebuyer assistance:– Two options: Resale or recapture– Cannot mix recapture and resale; must choose one or

other


14 Affordability Period

• Rental:

– Affordability period dictates compliance period

– Covers:

• Rents

– Rents must remain affordable as defined by grantee

• Incomes

– Occupancy for assisted units must continue to meet national objective

– If unit counted toward 25% low income set aside, unit must remain available to households < 50% AMI

– Tenant income verified at turn over

• Sale during affordability period must maintain restrictions34U.S. Department of Housing and Urban Development • Community Planning and Development

14 Affordability Period (cont)

• NSP Quarterly Performance Report required– Within 30 days of quarter end (NSP1 & NSP3)– Within 10 days of quarter end (NSP2)– Must post on website to be shared with citizens

• CAPER/PER not required for NSP

• Be certain to document compliance with all requirements– Use HUD monitoring checklists to self assess


15Reporting, Documenting Results & Close-Out

• Change of use – Applies to property owned by public grantee (in

perpetuity) or non-profit grantee/subrecipient(with permission of grantee)• Triggered when expended more than

$25,000 and project is sold or demolished• Must continue to meet national objective or

sell at current fair market value–Proceeds are program income

• See Demo/Disposition Policy Alert 3/14/1336U.S. Department of Housing and Urban Development • Community Planning and Development

15Reporting, Documenting Results & Close-Out (cont)

• See FR Notice dated Closeout Notice 11/27/12, NSP Closeout Guide 4/22/14

• Close-out criteria:– All costs paid with NSP incurred– Work complete– Met the LH25 requirement– All other requirements met

• Submit final QPR

• HUD prepares close-out agreement37U.S. Department of Housing and Urban Development • Community Planning and Development

15Reporting, Documenting Results & Close-Out (cont)

NSP After Close-Out• NSP continues for many grantees due to program income

• CDBG state and entitlement grantees must continue to expend according to all NSP rules

– Describe program and target areas in Action Plan of Con Plan

– NSP eligible activities and properties remain same

• Admin remains capped at 10% of PI

• Must continue to meet other federal requirements

– LH25 and affordability requirements continue

– Continue to report on status of NSP-assisted affordable units


NSP After Close-Out (cont)• Exceptions to these rules:

– If annual PI is less than $25k:

• Use to administer NSP

• Add to CDBG PI and treat according to CDBG rules

– If annual NSP PI is more than $25k but less than $250k, LH25 requirements are waived

• All other rules apply


NSP After Close-Out (cont)• NSP2 nonprofit consortium members and non-entitlement NSP3

grantees with no open state CDBG grant:

• Do not confuse this with subrecipients to CDBG grantees or consortia members – they are still covered

• Revenue received before close-out remains PI

• If no other HUD grant, revenue received during 5 years after close-out is not PI

– Must still be eligible and meet national objective

• Income received after 5 years is not considered PI

– Must still be eligible and meet national objective


NSP After Close-Out (cont)• Affordability:

– Must continue to ensure affordability requirements are met

• All units

• Report to HUD periodically using DRGR

– Will require process for recapturing $$$ at sale of owner units or ensuring resale to proper households

– Will also require periodic monitoring or reporting on rental units during affordability period

– Can use NSP admin funds for this purpose


NSP After Close-Out (cont)• Differences after close-out:

– Land banked properties

• Properties must be obligated/committed within 10 years of close-out

• Must use to support neighborhood stabilization

– LH25 and affordability requirements continue (see later slides for exception)


Options for Post-Close-Out Programs

• Conduct more of same program that generated PI

• Expand into new/different eligible activity– Make sure activity is described in approved

Action Plan and activity occurs in identified area of greatest need

• Could re-fund existing partners or choose new subs, developers etc.


NSP Lessons Learned • NSP creates new opportunities for program design

– Collaborate– Target– Leverage– Plan for long term


NSP Lessons Learned (cont) • Project underwriting and financing are important, even

in a grant program– Careful underwriting is key

• Must “right size” investment – not too much or too little subsidy• Use funds quickly by using reasonable, established

standards/criteria

• Use simple and efficient design

– NSP provides an opportunity to provide deep subsidies when needed for project

• Example: special needs projects, projects serving very low income persons

– Create partnerships with lenders to ensure financing


NSP Lessons Learned (cont)

• Timeliness still matters!

– Grantees must build environmental review into timelines & plan for it

– Effectively competing against investors requires use of special programs (First Look), relationships with lenders and nimble procedures

– Put “out clauses” into contracts with developers, subrecipients, other partners related to the timeliness of their expenditures


NSP Lessons Learned (cont) • Program administration requires active oversight

– Effective administration usually requires either staffing up and/or greater reliance on partners/contractors

– More diffused the program, harder to administer• Buyer driven programs have generally been difficult to

operate

– Think carefully about use of subrecipients v. developers --Implications:

• Procurement• Program income• OMB circulars• Eligible costs


NSP Lessons Learned (cont) • Program Administration (cont):

– Written policies, procedures and sample forms are critical

– Partners & staff often need capacity building – arrange for training & TA

• Look to existing CHDOs/CBDOs & private developers• Hire experts as needed for specific tasks

– Need to quickly build DRGR capacity – Review on-line training

• Think ahead about planned outcomes– Need to think now about end use and sale of property

• “If you build it they will come” approaches have not worked– Increased emphasis likely on reporting program results so develop

system now to collect info from partners


Questions?

• How to ask questions– Questions Box: You may enter your question into the

question box at any time during the presentation. We will read question aloud and answer during allotted Q&A session.

– Ask audible questions: If listening to the presentation over the phone, make sure to press in your audio pin provided (#xx#). Raise your hand and we will unmute your line to ask your question.


Top Ten NSP Policy Alerts


1. NSP 2 Program Income Waiver 2/28/20152. Landbank Disposition 11/25/143. NSP Closeout Guide 4/22/20154. Guidance on NSP-Eligible Acquisition & Rehabilitation Activities – 12/11/2009 5. Guidance on Homeownership: Affordability, Financial Structure, and Program

Income – 3/3/20096. Guidance on NSP National Objectives, Uses and Activities – 8/16/2012 7. Guidance on Property Types Under Each Eligible Use – 12/3/2009 8. Guidance on Developers, Subrecipients, and Contractors – Updated 11/16/2011 9. Guidance on the Procurement of Developers and Subrecipients – 6/1/201210. Guidance on Allocating Real Estate Development Costs in the Neighborhood

Stabilization Program – 9/16/201111. Guidance on NSP Activity Delivery and Administrative Costs – 5/18/201212. Program Income in the Neighborhood Stabilization Program – 7/13/201113. Guidance on NSP Disposition and Demolition – 3/14/2013


NSP Webinar Resource Links

U.S. Department of Housing and Urban Development • Community Planning and Development

Resources on NSP and OneCPD Resource Exchanges

Search the OneCPD Resource Library https://www.hudexchange.info/resource-library/

Search the NSP FAQs https://hudexchange.info/nsp

View All Training Materials on the NSP Learning Center

https://www.hudexchange.info/nsp

Get NSP Assistance https://www.hudexchange.info/get assistance/

Request NSP Technical Assistance https://www.hudexchange.info/technical-assistance/

Connect with NSP

Join the OneCPD Mailing List https://www.hudexchange.info/mailinglist/

Visit the NSP Flickr Gallery https://www.flickr.com/photos/nspresourceexchange

https://www.hudexchange.info/resource-library/

http://hudnsphelp.info/faqs

https://www.hudexchange.info/nsp

https://www.hudexchange.info/get%20assistance/

https://www.hudexchange.info/technical-assistance/

https://onecpd.info/mailinglist/

http://flickr.com/photos/nspresourceexchange

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