Notice of Change in Definitions and Modification to Neighborhood Stabilization Program (NSP), 18228-18231 [2010-8131]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 75, Number 68 (Friday, April 9, 2010)]
[Notices]
[Pages 18228-18231]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8131]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. 5321-N-03]


Notice of Change in Definitions and Modification to Neighborhood 
Stabilization Program (NSP)

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Notice.

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SUMMARY: On October 6, 2008, HUD published a notice advising the public 
of the allocation formula and allocation amounts, the list of grantees, 
alternative requirements, and waivers granted under Title III of 
Division B of the Housing and Economic Recovery Act (HERA) of 2008, 
which established the NSP. On June 19, 2009, HUD published a bridge 
notice advising the public of substantive revisions and a number of 
non-substantive technical corrections to the October 6, 2008, notice, 
primarily as a result of changes to NSP made by Title XII of Division A 
of the American Recovery and Reinvestment Act of 2009 (the ``Recovery 
Act'') (Pub. L. 111-005, approved February 17, 2009).
    Today's notice implements a program change resulting from an 
amendment to HERA made by the Helping Families Save Their Homes Act of 
2009 (Pub. L. 111-22, approved May 20, 2009) (HFSHA), and which change 
was made retroactive to the date of enactment of HERA--July 30, 2008. 
This notice also advises of changes to the October 6, 2008, notice's 
definitions for ``Abandoned'' and ``Foreclosed'' property to assist in 
better targeting NSP assistance for the purchase, rehabilitation, or 
redevelopment of abandoned and foreclosed properties.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Department of Housing and Urban Development, 
451 7th Street, SW., Room 7286, Washington, DC 20410, telephone number 
202-708-3587. Persons with hearing or speech impairments may access 
this number via TTY by calling the Federal Information Relay Service at 
800-877-8339. FAX inquiries may be sent to Mr. Gimont at 202-401-2044. 
(Except for the ``800'' number, these telephone numbers are not toll-
free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Title III of Division B of HERA (Pub. L. 110-289, approved July 30, 
2008) appropriated $3.92 billion for emergency assistance for the 
redevelopment of abandoned and foreclosed homes and residential 
properties, and provides under a rule of construction that, unless HERA 
states otherwise, the grants are to be considered Community Development 
Block Grant (CDBG) funds. The grant program under Title III is commonly 
referred to as the Neighborhood Stabilization Program (NSP). HERA 
authorizes the Secretary to specify alternative requirements to any 
provision under Title I of the Housing and Community Development Act of 
1974 (the HCD Act) except for requirements related to fair housing, 
nondiscrimination, labor standards, and the environment (including 
lead-based paint), in accordance with the terms of section 2301 of HERA 
and for the sole purpose of expediting the use of grant funds.
    On October 6, 2008 (73 FR 58330), HUD published a notice entitled 
``Notice of Regulatory Waivers Granted to and Alternative Requirements 
for Redevelopment of Abandoned and Foreclosed Homes Grantees Under the 
Housing and Economic Recovery Act, 2008.'' This notice advises the 
public of the allocation formula and allocation amounts, the list of 
grantees, alternative requirements, and waivers granted. On June 19, 
2009 (74 FR 29223), HUD published a bridge notice which advised the 
public of substantive revisions and several non-substantive technical 
corrections to the October 6, 2008 notice, primarily as a result of 
changes to NSP made by Title XII of Division A of the American Recovery 
and Reinvestment Act of 2009 (Pub. L. 111-005, approved February 17, 
2009) (Recovery Act).
    Today's notice advises the public of two definition changes to the 
October 6, 2008 publication, based on the experiences of grantees in 
implementing the program and designed to increase the effectiveness of 
the program and speed its implementation. The effect of these changes 
will be to broaden the inventory of eligible properties, increase 
grantee capacity, and to reduce regulatory friction points affecting 
the speed of the program. NSP grantees may apply the new definitions as 
of the date of submission of their Substantial Amendment and Action 
Plan to HUD, regardless of the current status of acquisition, 
redevelopment or disposition activities already undertaken. Note that 
NSP assistance may only be provided to eligible activities carried out 
in compliance with all applicable NSP program requirements, including 
preparation and submission of an amendment to the initial Substantial 
Amendment to implement certain program adjustments. Additionally, this 
notice advises of a program change contained in section 105 of HFSHA, 
which affects those states receiving the minimum grant of $19.6 million 
in NSP funding.

II. This Notice--Changes to NSP Notice

    HUD has determined that the following definition changes and 
alternative requirements are necessary to expedite the use of these 
funds for their required purposes.

A. Definitions of Abandoned and Foreclosed

    HUD determined that the definition of ``Abandoned'' on page 58331 
of the NSP

[[Page 18229]]

notice is too restrictive such that NSP funds are in some cases 
prevented from being employed as contemplated by the HERA. HUD has 
received many comments from grantees and other interested parties that 
the current definition limits the opportunities to acquire properties 
in a strategic and timely manner. For example, the requirement that the 
property has been vacant for at least 90 days leaves out properties 
abandoned by owners, but where tenants are still in place. This then 
precludes grantees from the opportunity and ability to assist these 
properties with NSP funds, which would in fact protect the tenants that 
may be occupying such properties. This limitation has been determined 
to be a substantial barrier to preservation of existing affordable 
housing. Some comments received by HUD pointed out that abandonment 
predictably occurs when code enforcement in a high risk market is not 
followed up with a property acquisition strategy, and that abandonment 
is a function of a weak housing market in which residential units sell 
for substantially less than their replacement value. To provide 
grantees with greater flexibility in determining which properties to 
acquire, and greater opportunity to acquire properties in a 
strategically timely manner, HUD is amending the definition of 
``Abandoned'' in the notice. HUD's amendments are directed only to 
identifying program-specific eligibility criteria for using NSP funds 
to assist abandoned properties. These amendments should not be 
construed to supersede any state, local or tribal legal proceedings 
that may govern abandoned properties, as such term may be defined under 
state, local or tribal law, or any protection rights available to 
property owners or tenants under Federal, State, local or tribal law.
    The Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970, as amended (42 U.S.C. 4601) (URA) applies to the 
acquisition of real property for a federally-funded program or project 
and also when persons are displaced as a direct result of acquisition, 
rehabilitation or demolition for a federally-funded program or project. 
Property acquisitions which satisfy the applicable requirements of the 
URA regulations at 49 CFR 24.101(b)(1)-(5), may be considered 
voluntary, whereas acquisitions subject to the threat and use of 
eminent domain are considered involuntary and the acquisitions are 
subject to the full real property acquisition requirements of 49 CFR 
part 24, subpart B. Typically tenant-occupants displaced in connection 
with voluntary acquisitions are eligible for URA relocation assistance, 
whereas owner-occupants are not. In cases of an involuntary 
acquisition, both owner-occupants and tenant-occupants are eligible for 
URA relocation assistance. NSP grantees and subrecipients should ensure 
their activities are in compliance with all applicable URA acquisition 
and relocation requirements. NSP funds may be used to provide URA 
permanent and temporary relocation assistance as provided in 24 CFR 
570.201(i). This includes permanent and temporary relocation assistance 
for eligible persons displaced by projects assisted with NSP funding.
    Grantees need to be particularly careful when acquiring properties 
within the newly expanded definition of abandoned which now includes 
properties subject to code-enforcement actions. For instance, if a 
grantee has the power of eminent domain and a governmental subrecipient 
or contractor of that grantee uses NSP funds to acquire a property with 
a serious code enforcement deficiency, the grantee will likely need to 
approach the acquisition as an involuntary acquisition under the URA, 
subject to the full real property acquisition requirements of 49 CFR 
part 24 subpart B. For property acquisitions by other NSP-assisted 
entities, such as a non-governmental subrecipient, private developer, 
or homebuyer, the grantee is advised to carry out due diligence to 
ensure that prohibited coercion of the seller is in no way involved in 
the transaction. For example, a unit of government that has the power 
of condemnation and code enforcement, and provides funds to a non-
profit to purchase properties condemned or deemed uninhabitable by that 
unit of government may give the property owner the perception that 
condemnation or eminent domain action might be used coercively to 
enable a subrecipient to buy the property. Also illustratively, a case 
in which a city initiates a redevelopment project, selects the 
developer, controls the developer's activities by contract, commits 
itself to acquire by eminent domain any property that the developer 
fails to acquire through negotiation, and provides financing for the 
acquisitions, may be viewed as jointly ``undertaken'' by the city and 
the developer for acquisition and relocation purposes under the URA. 
The URA regulations at 49 CFR 24.102(h) prohibit agencies from 
advancing the time of condemnation, deferring negotiations, or 
condemnation or the deposit of funds with the court, or from taking any 
other coercive action to induce an agreement on the price to be paid 
for a property.
    According to commenters, the definition of ``Foreclosed'' on page 
58331 is very clear, but not a good match for market conditions in many 
areas. HUD has received numerous expressions of concern from grantees 
and other interested parties that the current definition needs to be 
modified to permit greater flexibility in addressing local market 
conditions. The definition limits a grantee's ability to intervene 
strategically when a lender initiates but does not complete 
foreclosure, or where a default is allowed to linger. Further, many 
lenders are transferring properties to aggregators or servicers, which 
then arrange for final disposition. In some of these cases, current 
policy does not consider the properties to retain their foreclosed 
status after title is transferred to the aggregator or servicer. (By 
``intermediary aggregators and servicers'' HUD does not mean 
``investors.'' An aggregator or servicer will typically limit the 
resale price to acquisition plus a modest servicing fee; such 
organizations are not investors seeking to maximize the return on their 
capital.) For the same reasons that HUD is amending the definition of 
``Abandoned,'' it is amending the definition of ``Foreclosed.'' To wait 
until foreclosure has been completed, as ``foreclosed'' was originally 
defined in the NSP notice, only allows the properties to further 
deteriorate and the neighborhoods in which such properties are located 
to further suffer from these deteriorating conditions, making 
redevelopment harder and more time consuming to do. As is the case with 
the amendments to the definition of ``Abandoned,'' the amendments to 
``Foreclosed'' should not be construed to supersede or affect in any 
way state, local or tribal laws governing foreclosures or any 
protection rights available to property owners or tenants under 
Federal, State, local, or tribal law.
    The new definition of foreclosed applies the term ``current 
delinquency status''. This indicates the number of days (e.g., 30, 60, 
90) the borrower is contractually past due. NSP grantees will use the 
Mortgage Banker Association (MBA) Delinquency Calculation Method to 
determine the current delinquency status of a mortgage. Under the MBA 
method, a loan would be considered delinquent if the payment had not 
been received by the end of the day immediately preceding the loan's 
next due date (generally the last day of the month which the payment 
was due). Using the example above, a loan with a due date of August 1, 
2009, with no payment

[[Page 18230]]

received by the close of business on August 31, 2009, would have been 
reported as delinquent in September. From September 1 to September 30, 
2009, the mortgage's current delinquency status would be 30 days. On 
October 1, 2009, the mortgage's current delinquency status would become 
60 days.

B. Implementation of Public Law 111-22 for Certain States

    Section 105 of HFSHA amends section 2301(c) of HERA (42 U.S.C. 5301 
note) to allow those states receiving only the minimum NSP allocation 
of $19.6 million and that have NSP funds remaining after distributing 
in accordance with the priority established in section 2301(c)(2) of 
HERA to distribute those remaining funds to ``areas with homeowners at 
risk of foreclosure or in foreclosure without regard to the percentage 
of home foreclosures to such areas.'' Section 105 of Public Law 111-22 
affects the following states: Alaska, Arkansas, Delaware, Hawaii, 
Idaho, Maine, Montana, North Dakota, Nebraska, New Hampshire, New 
Mexico, Oregon, Puerto Rico, Rhode Island, South Dakota, Utah, Vermont, 
West Virginia and Wyoming.
    States submitted a substantial amendment for NSP to their 2008 
Annual Action plan to propose uses for the NSP funds, referred to 
herein as the ``NSP plan''. The NSP plan included needs data 
identifying the geographic areas of greatest need and a narrative 
describing how the NSP funds would be distributed to those areas of 
greatest need in accordance with section 2301(c)(2) of HERA. Section 
105 of HFSHA now allows states to re-program NSP funds to additional 
areas with homeowners at risk of foreclosure or in foreclosure without 
regard to the percentage of home foreclosures in such areas if they 
have fulfilled the requirements of section 2301(c)(2) of HERA. Eligible 
states, those that only received $19.6 million in NSP funds, that wish 
to take advantage of this option, must provide a substantial amendment 
to their NSP plan. The amendment must contain several elements, 
including the state's explanation of how it has fulfilled the 
requirement of section 2301(c)(2), distributing funds in a manner that 
gives priority to areas with greatest need, as outlined in the NSP 
plan.
    A state may define program terms under the authority of 24 CFR 
570.481(a) and will be required to define certain terms if it chooses 
to submit a substantial amendment. States will be given maximum 
feasible deference in accordance with 24 CFR 570.480(c) in matters 
related to the administration of their programs.
    This amendment will not be subject to HUD approval, unlike the NSP 
plan. States that plan to amend their NSP plan must follow the 
alternative requirements found in section II.B.4.b. of the October 6, 
2008, (73 FR 58330) notice as amended by the June 19, 2009, notice (74 
FR 29223). The state will submit a copy of the substantial amendment to 
the HUD field office when the citizen participation is complete. 
Although the amendment is not subject to approval, HUD will monitor 
grantees to ensure proper implementation of the substantial amendment 
pursuant to section 105 of HFSHA.
    HUD reminds grantees of the statutory deadline to obligate all NSP 
funds within 18 months from the date that HUD signed the agreement with 
the state. This deadline does not change for those eligible states that 
choose to amend their NSP plan pursuant to this notice. Therefore, if a 
state plans to amend its NSP plan pursuant to this notice, it is in the 
state's best interest to develop the amendment as soon as possible.
    Except as described in this notice, the October 6, 2008, notice, 
and the June 19, 2009, notice, the statutory and regulatory provisions 
governing the Community Development Block Grant (CDBG) program 
including those at 24 CFR part 570, subpart I, shall continue to apply 
to the use of these funds. The modification pursuant to section 105 of 
HFSHA provides for no changes to the NSP eligible uses and 
corresponding CDBG eligible activities, other targeting requirements 
(e.g. the 25 percent set-aside), timeframes for obligation or 
expenditure or any other provision not explicitly annotated in this 
notice. The environmental provisions of 24 CFR part 58 remain in effect 
and funds cannot be drawn down until there is an approved Request for 
Release of Funds.

III. NSP Amendments

    The substantive revisions made by this notice are as follows. (The 
Federal Register page number identifies where the language to be 
revised can be found in the October 6, 2008, notice.)
Definition Changes
    1. The definition of ``Abandoned'' on page 58331 is revised to read 
as follows: ``Abandoned. A home or residential property is abandoned if 
either (a) mortgage, tribal leasehold, or tax payments are at least 90 
days delinquent, or (b) a code enforcement inspection has determined 
that the property is not habitable and the owner has taken no 
corrective actions within 90 days of notification of the deficiencies, 
or (c) the property is subject to a court-ordered receivership or 
nuisance abatement related to abandonment pursuant to state, local or 
tribal law or otherwise meets a state definition of an abandoned home 
or residential property.''
    2. The definition of ``Foreclosed'' on page 58331 is revised to 
read as follows: ``Foreclosed. A home or residential property has been 
foreclosed upon if any of the following conditions apply: (a) The 
property's current delinquency status is at least 60 days delinquent 
under the Mortgage Bankers of America delinquency calculation and the 
owner has been notified of this delinquency, or (b) the property owner 
is 90 days or more delinquent on tax payments, or (c) under state, 
local, or tribal law, foreclosure proceedings have been initiated or 
completed, or d) foreclosure proceedings have been completed and title 
has been transferred to an intermediary aggregator or servicer that is 
not an NSP grantee, contractor, subrecipient, developer, or end user.''
    3. Those states receiving only the minimum NSP allocation of $19.6 
million and that have NSP funds remaining after distributing in 
accordance with the priority established in section 2301(c)(2) of HERA 
may distribute those remaining funds to ``areas with homeowners at risk 
of foreclosure or in foreclosure without regard to the percentage of 
home foreclosures to such areas.'' States that choose to exercise this 
option must provide a substantial amendment to their NSP Plan.
Implementation of Public Law 111-22: Contents of the Substantial 
Amendment to the NSP Plan for States
    1. General information about ``fulfilled requirement of section 
2301(c)(2)'':
    a. Provide the original summary needs data identifying the 
geographic areas of greatest need in the grantee's jurisdiction 
submitted in the NSP plan;
    b. Define ``fulfillment'' in the context of section 2301(c)(2);
    c. Explain how funds were distributed in a manner that met the 
requirements of section 2301(c)(2) of HERA, i.e., the state gave 
priority emphasis and consideration to the areas of greatest need, 
including those with the greatest percentage of home foreclosures, the 
highest percentage of homes financed by a subprime mortgage loan, and 
identified by the state or unit of general local government as likely 
to face a significant rise in the rate of home

[[Page 18231]]

foreclosure. Provide documentation in support of this explanation.
    2. General information about ``remaining funds'':
    a. Define ``remaining funds'';
    b. Detail the calculation methodology. The calculation of remaining 
funds may be performed on an area-by-area basis. In this manner, the 
state does not need to demonstrate that the requirements of section 
2301(c)(2) have been met in all areas before the remaining amounts can 
be calculated, so long as funds have been programmed to meet the 
requirements of 2301(c)(2) in all areas;
    c. List the dollar amount of remaining funds.
    3. Designation of additional area(s):
    a. Define ``Areas with Homeowners at Risk of Foreclosure or in 
Foreclosure'';
    b. Delineate additional area(s) for the receipt of remaining NSP 
funds; include specific data sources to support that these area(s) 
contain homeowners at risk of foreclosure or in foreclosure;
    c. Describe how the remaining funds will be distributed to 
additional area(s).
    4. Information by activity describing how the state will use the 
remaining funds, identifying:
    a. The eligible use of funds under NSP;
    b. the eligible CDBG activity or activities;
    c. the area(s) that will be served with the remaining funds;
    d. the expected benefit to income-qualified persons or household 
area(s);
    e. appropriate performance measures for the activity (e.g. units of 
housing to be acquired, rehabilitated, or demolished for the income 
levels represented in DRGR, which are currently 50 percent of area 
median income and below, 51 to 80 percent, and 81 to 120 percent);
    f. the amount of funds budgeted for the activity;
    g. the name and location of the entity that will carry out the 
activity; and
    h. the expected start and end dates of the activity.
    5. A description of the general terms under which assistance will 
be provided, including:
    a. If the activity includes acquisition of real property, the 
discount required for acquisition of foreclosed-upon properties;
    b. Range of interest rates (if any);
    c. Duration or term of assistance;
    d. Tenure of beneficiaries (e.g., rental or homeownership); and
    e. If the activity produces housing, how the design of the activity 
will ensure continued affordability; and
    f. If the funds used for the activity are to count toward the 
requirement at section 2301(f)(3)(A)(ii) to provide benefit to low-
income persons (earning 50 percent or less of area median income).
    6. Information on how to contact grantee program administrators, so 
that citizens and other interested parties know who to contact for 
additional information.

Finding of No Significant Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332). The FONSI is 
available for public inspection between 8 a.m. and 5 p.m. weekdays in 
the Regulations Division, Office of General Counsel, Department of 
Housing and Urban Development, Room 10276, 451 7th Street, SW., 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the docket file 
must be scheduled by calling the Regulations Division at 202-708-3055 
(this is not a toll-free number). Hearing or speech-impaired 
individuals may access this number through TTY by calling the toll-free 
Federal Information Relay Service at 800-877-8339.

    Dated: April 1, 2010.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.
[FR Doc. 2010-8131 Filed 4-8-10; 8:45 am]
BILLING CODE 4210-67-P