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Labor and Economic Development Committee

Housing and Economic Recovery Act of 2008: Emergency Grants Funding Formula Announced

October 6, 2008
Prepared by Diana Hinton Noel

Adobe PDF Download PDF Version  // State and Local Allocations

In July 2008, after months of negotiations about how to best stabilize the housing market, Congress passed and the President signed into law the Housing and Economic Recovery Act of 2008 (HR 3221).  Title III of the Act allocates $3.92 billion in emergency assistance grants (called the Neighborhood Stabilization Program) to state and local governments with the greatest need for redevelopment of abandoned and foreclosed homes and residential properties. The bill directs the U.S. Department of Housing and Urban Development (HUD) to develop a funding formula for distribution based on the following criteria:

  • The number and percentage of home foreclosures.
  • The number and percentage of homes financed by a subprime mortgage related loan.
  • The number and percentage of homes in default or delinquency.

On September 26, 2008, HUD announced the allocations and methodology for the Neighborhood Stabilization Program, which will provide the emergency grants.  The Notice of Allocation, posted in the Federal Register on September 29, 2008, provides more detail on program administration and appropriate use of funds.  Additionally, HUD will host a national housing summit in Washington, D.C. on October 7-8, 2008, as well as regional conferences to explain the details of the program.

Neighborhood Stabilization Program Allocations

Each state will receive at least 0.5% ($19.6 million) of available funds. There is no requirement for a state or local match.  Funds are to be treated as Community Development Block Grant (CDGB) program funds and can be used for the following:

  • Establishing financial mechanisms for purchase and redevelopment of foreclosed homes, including soft-seconds, loan loss reserves and shared-equity loans for low-moderate income home buyers.
  • Purchasing and rehabilitating abandoned or foreclosed homes in order to sell, rent or redevelop the property.  The law sets limitations on purchases and rehabilitation of properties.  Purchases must be at a price below market value.  Selling a rehabilitated home to an individual as a primary residence cannot not exceed the cost of acquiring or rehabilitating the home.  
  • Establishing land banks for homes that have been foreclosed.
  • Demolishing blighted structures.
  • Redeveloping demolished or vacant properties.

States and local governments must make areas of greatest need their priority for funding.  Those areas are determined by the number and percentage of home foreclosures, homes financed by subprime loans, and homes that are in default or delinquency.

Formula Methodology

To assist in developing the funding formula for distribution, HUD analyzed data from the Mortgage Bankers Association National Delinquency Survey, Census Bureau, Federal Reserve's Home Mortgage Disclosure Act, U.S. Postal Service, the Office of Federal Housing Enterprise Oversight, and the U.S. Department of Labor.  After the analysis, HUD based its allocation on each state's relative need, based on the law's criteria.  Since this is one-time funding  and the specified activities are different from regular Community Development Block Grant programs, HUD reasoned that a grantee must receive at least $2 million for proper staffing and administration of the program.  Allocations to the state and local governments are as follows:

  • Each state government is allocated at least $19.6 million.
  • If the statewide allocation is more than $19.6 million, the remaining funds are allocated to state and local government proportional to their relative need.
  • If a local government receives less than $2 million under the sub-allocation, its grant is rolled into the state government grant and can apply to the state for funds.

In most cases, HUD allocated state governments more grant funds than local governments, with California, Ohio and Texas state programs potentially receiving over $100 million each.  

Important Deadlines

December 1, 2008: Each grantee (state or local government) must complete and submit an action plan to HUD for approval.  State and local governments should carefully review the notice in the Federal Register and consider administrative capacity for the funds.  Two or more jurisdictions in the same metropolitan area may make a joint request and will have to specify which jurisdiction must administer the program.  If a local government and state government make a joint request, the state government will administer the program.  A possible third option is for a jurisdiction to apply for its entire grant then enter into a third party agreement with another jurisdiction or nonprofit entity to administer the grant.

18 Months of Receipt: All Neighborhood Stabilization Program funds must be used or committed within 18 months of receipt.

Additional Information

(NOTE: NCSL provides links to other Web sites from time to time for information purposes only. Providing these links does not necessarily indicate NCSL's support or endorsement of the site.)

For more information, please contact Diana Hinton Noel or Robert Strange

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