WASHINGTON – Sept. 29, 2008 – The state of Florida will receive $541 million in new federal foreclosure funds to prevent further home loan defaults and combat the effects of blight caused by the growing tide of abandoned properties, U.S. Housing and Urban Development Secretary Steve Preston announced Friday.
State and local governments must use the funds, called community development block grants, to buy property, rehabilitate abandoned homes and offer down payment assistance to low-to-middle-income home buyers. The money may also be used to create so-called land banks to acquire, manage and sell distressed property.
The funds, however, are not available to homeowners facing foreclosure. Preston’s announcement comes as Congress rushes to craft emergency legislation to rescue the country’s financial sector, which has been hit with historic losses from failing home loans.
The grants are part of a massive housing and economic recovery package signed by President Bush in July aimed at salvaging the real estate market with tax credits for first-time home buyers; additional resources for foreclosure prevention counseling; and up to $300 billion to refinance at-risk homeowners into low-cost, government-backed loans.
Originally, the neighborhood stabilization funds were a sticking point in the passage of the legislation because they were viewed as a bailout for banks holding foreclosed properties. President Bush had threatened to veto the legislation, but later backed down.
Now, legislators are poised to pass a $700 billion proposal to directly purchase mortgage-backed securities from the industry.
From the state’s allocation, Miami-Dade County, badly battered by the recent tsunami of foreclosures, will receive more than $62 million – the largest share of funds. The city of Miami and Miami Gardens will get roughly $12 million and $6 million, respectively. Broward County is eligible for nearly $18 million. The state’s housing program will get an additional $91 million to assist in foreclosure prevention and remediation efforts.
HUD based the distribution of funds on a formula that calculated the number and percentage of foreclosures as well as the proportion of subprime loans, mortgage defaults and delinquencies.
As of June 30, Florida had the highest percentage of foreclosures in the country, with 6 percent of all mortgages in default, representing some 200,000 properties. Nationally, more than 1.1 million borrowers were in foreclosure at the end of the second quarter, according to the Mortgage Bankers Association. Economists expect the toll to grow though next year as the economy weakens.
“To those areas trying to recover from the effects of foreclosure and declining property values, help is on the way,” Preston said in a statement. “Clearly, the intent is to put this money to work in communities with the highest need and to have a meaningful impact.”
George Mensah, director of Miami’s community development department, said that in anticipation of the grants the city had already established broad parameters for using the funds. He was pleased with the amount of HUD’s disbursement.
“That’s more than we expected. We expected between $8 million and $10 million. Obviously, $12 million will help us do a lot more,” Mensah said.
The city plans to spend roughly 50 percent of the grant money in an equity-sharing program with low-income buyers. The program would assist home buyers with 50 percent of the purchase price of a foreclosure.
Another 25 percent of the money will go toward buying blighted and abandoned homes. Mensah said the city would rehab properties or demolish them to build new affordable housing.
The remainder will be used for rental assistance for low-income residents.
Mensah said the plan still needs City Commission approval. HUD has said it will release further details of how the money can be used in the next two weeks.
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