Neighborhood Stabilization – Does the Funding Formula Work?

The first round of the Neighborhood Stabilization Program (NSP) “was established (in 2008) for the purpose of stabilizing communities that have suffered from foreclosures and abandonment[i]”. Funding was given to states and local jurisdictions to help redevelop and purchase foreclosed properties. This program was a response to the housing crisis set off by thousands of subprime loans targeted to low-income neighborhoods and communities of color[ii]. Minneapolis neighborhoods were no exception to the geographic targeting of predatory loans. Mortgage lenders created a segregated housing market by targeting the predominantly African American neighborhoods of north Minneapolis. The map below (map 1) shows all foreclosure sales in the City of Minneapolis for the year 2009[iii]. Clusters of foreclosures (blue dots) appear throughout the city, but it is clear to see how north Minneapolis residents fell victim to predatory lending. 36% of all foreclosures in 2009 were in Wards 4 and 5 (north Minneapolis).

Now the question is, was NSP 1 funding targeted to the correct neighborhoods of Minneapolis? Map 2 (to below) shows all NSP 1 eligible areas (zip codes where NSP funding is restricted to) in Minneapolis[iv].

Funding was allocated to cities based on total foreclosures, the number of loans currently in default, and the number of subprime loans administered[v]. High concentrations of foreclosures in north, northeast, and south central/east Minneapolis mirror NSP 1 eligible areas in map 2. In the sense of allocating funding to areas of highest need the NSP 1 formula appears to be successful. Expenditures tied to foreclosure recovery programs aimed at purchasing and rehabilitating homes were administered within the correct neighborhoods, but was it enough money to address the problem and who is really benefiting?

Many of the banks owning these foreclosed homes either administered the subprime and predatory loans, or purchased the loans from other mortgage brokers. Some argue city and state expenditures used to purchase foreclosed homes are going directly to banks, and many question using federal dollars to essentially bail out the banks for making reckless loans[vi]. Others say the NSP program does not sufficiently address the problem of foreclosures and more funding should be directed to cities and states in order to make a real difference; $4 billion in funding is too small an amount spread out over too many jurisdictions to really solve the problem at hand[vii]. As the third and final round of NSP funding is allocated to cities as states, the effectiveness of it can be analyzed and the discussions of additional funding may begin.

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[i]http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

[ii] Institute on Race and Poverty. (2009). Communities in Crisis: Race and Mortgage Lending in the Twin Cities. Minneapolis: Institute on Race and Poverty.

[iii]http://www.ci.minneapolis.mn.us/foreclosure/MortgageForeclosureMaps_archive.asp

[iv] Ibid

[v] Department of Housing and Urban Design. (2011). Community Planning and Development. Retrieved 2011, from Neighborhood Stabilization Program Grants : http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/

[vi] http://www.msnbc.msn.com/id/29357034/ns/business-eye_on_the_economy/

[vii] http://www.plannyc.org/taxonomy/term/1016