Director's Message
July 14, 2009

To: Employees and Partners of Oregon Housing and Community Services

From: Victor Merced

Re: Director’s Bulletin –

• Neighborhood Stabilization Plan
• TCAP and Exchange
  

Surging home foreclosures in Oregon, up substantially in the first quarter of 2009, are influencing policymakers to focus on the federal Neighborhood Stabilization Program.

NSP is designed to stabilize communities facing blight caused by foreclosure, not to solve the foreclosure problem.

Right now, NSP experts Dona Lanterman and Becky Baxter of Oregon Housing and Community Services are working to assimilate federal rule changes in the first program (NSP1), while they have just processed the application for the second program (NSP2).

NSP1 is worth $19.6 million to Oregon under the Housing and Economic Recovery Act of 2008 to provide qualified government entities, developers and individuals to acquire, rehabilitate, demolish and redevelop foreclosed properties.

That money is just now getting into the Oregon pipeline to help revitalize the moribund housing market by facilitating purchase of foreclosed properties.

Sale price. Key among the changes is a requirement that the sale price of a property be discounted 1 percent from the appraised value. The required discount had been 15 percent, a likely deal-killer in many instances.

Holders of foreclosed properties might be reluctant to sell, even in this market, at such a deep mark-down. Thankfully, the feds relaxed the rule.

Dona and Becky have just returned to the state from a major instructional workshop to sort out the new rules and get NSP1 money working for Oregonians.

While they’re dealing with all that this week, they also have managed to package Oregon’s NSP2 application to the U.S. Department of Housing and Urban Development. HUD’s deadline is this coming Friday (July 17).

OHCS is applying for the NSP2 grant as a consortium with other key entities where the foreclosure challenges are great. Federal guidance on NSP allows use of funds only in the select areas of the state designated by HUD as hit hardest by foreclosure. These include parts of Deschutes, Crook, Jefferson, Clackamas, Jackson, Washington, and Marion counties.

NSP2 is funded by the American Recovery and Reinvestment Act of 2009, unlike NSP1, funded by HERA of 2008 (see above).

How serious is it? Oregon homes in foreclosure jumped 31 percent during the first quarter of 2009 over the preceding quarter (14,064, up from 10,775), reports the Mortgage Bankers Association. This compares to a 16 percent quarter-to-quarter jump nationwide.

Clearly, the situation in Oregon has continued to worsen. The most noteworthy problem is in Central Oregon, where a significant number of targeted NSP2 census tracts are located. “Unemployment and loss of housing value” are major contributors to the “staggering” effects on Deschutes, Crook, and Jefferson counties, according to Dona and Becky.

The diligence of these OHCS authorities in pursuing NSP1 and NSP2 has been remarkable, and OHCS can be proud of its participation in addressing with all available tools the blight of concentrated foreclosures.

TCAP and Exchange. Oregon Housing and Community Services is moving quickly to fill gaps with stimulus dollars in stalled low-income, multifamily housing projects financed with federal tax credits.

This gap financing comes to the department by means of the Tax Credit Assistance Program (TCAP) and its companion Section 1602 Exchange Program, created under the American Recovery and Reinvestment Act (ARRA) to combat the distressed economy and its drag on housing construction.

Based on the most recently available project data and preliminary estimates of need for gap funding, there appears to be adequate TCAP and Section 1602 resources to meet the demand and assist most stalled tax credit projects.

OHCS is working under compressed timelines to meet the needs of project sponsors and complete its work in accordance with the U.S. Department of Housing and Urban Development and U.S. Treasury deadlines:  

• June 30 – Housing and Urban Development awarded $27.3 million in TCAP funds.
• July 13 – OHCS conducted application training for gap financing.
• August 10 – TCAP/Exchange applications are due to OHCS.
• August 28 – State Housing Council makes TCAP and Exchange awards.
• Sept. 1 – Projects may proceed toward start of construction this season.

Successful applicants, of course, are required to demonstrate financial need. They must also meet key criteria prescribed by the state, such as evidence of ability to expend resources effectively within federally mandated timelines. But most importantly, their projects must be ready to proceed and be complete in 2010-11.

The programs, as implemented by OHCS, cover preservation of federal subsidized rental housing in addition to new construction. The pipeline of potentially eligible projects includes about 30 developments across the state.

Investor interest. Vital to preparing a successful application, project sponsors must secure investment equity or demonstrate due diligence in striving to secure equity investments and leveraging those resources to complete their projects.

The OHCS Multifamily Housing Division has carefully analyzed the portfolio of potentially eligible projects in view of the ongoing volatility of the market. This analysis will continue during the TCAP and Exchange application process.

The diminished value of housing tax credits, which have historically been a stable source of private funding for our industry, exemplifies the dramatic downward spiral the recession has had on acquisition of capital investments. In addition, the tax credit value drop illustrates the fierce competition for the diminished capital available in the market.

Investment capital that historically has been readily available to develop a diverse portfolio of project types since 1986, when low-income housing tax credits were legislatively implemented, has dried up almost entirely in some markets around the country.

Projects have stalled without the anticipated equity infusions that were included in the financing structure completed prior to the competitive award of tax credits. Financing structures have had to adapt and carry the burden of a recessionary market.

The economic downturn has hurt investor earnings, diminishing their tax liabilities and need for long-term federal tax credits. Where investor interest still thrives, conservative real estate underwriting and healthy projects in markets with good demand will prevail.

Filling the pipeline. Oregon has a portfolio of such projects, and with additional funds from TCAP and Exchange, OHCS anticipates completion of most developments to which the department has awarded tax credits.

Unlike many markets around the country where projects with 2008 credit awards have been unable to find investments, the bulk of Oregon’s 2008 tax credit projects are currently under construction. Remaining 2008 tax credit projects are eligible for federal stimulus gap-financing resources.

For Oregon, the issue at hand relates principally to a mixture of 2009 tax credit projects and bond projects that preserve federally subsidized rental housing in some of the neediest regions in the state. Both types have been stalled due to current economic conditions.

Everyday that goes by without the housing these projects are expected to complete is another day a family does not have access to the opportunities derived from a stable place to call home and raise children.

Be assured, OHCS is working diligently to maintain a viable market for development and preservation of low- and moderate-income housing. This is no easy task, but strong collaboration between OHCS staff and partners, our sponsors, investors and lenders, I am confident, will win the day.

Let me know your thoughts, especially about what we can do better to implement these programs.

Men at some time are masters of their fates.
~ William Shakespeare, Julius Caesar

Victor Merced, Director
Phone 503.986.2005
Email: victor.merced@hcs.state.or.us
www.ohcs.oregon.gov

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