Neighborhood Stabilization Program

NSP1

In the summer of 2008, pressures to address the mounting insolvency crisis of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac), along with urgently needed reforms to the Federal Housing Administration, led the Bush administration and the Democratic congressional leadership to cooperate on omnibus housing legislation. The resulting bill, nearly 700 pages long, was called the Housing and Economic Recovery Act (HERA) of 2008 (Public Law 110-289). It contained a short section subtitled “Emergency Assistance for the Redevelopment of [Page 504]Abandoned and Foreclosed Homes,” in which $4 billion was appropriated for “assistance to states and units of general local government for the redevelopment of abandoned and foreclosed upon homes and residential properties” (HERA, Section 2301, p. 2).

The act allocated these funds to states and localities on the basis of a formula to be developed by the U.S. Department of Housing & Urban Development (HUD) based on the number and percentage of foreclosures, homes in default, and subprime mortgages. HUD worked quickly, and by the beginning of October 2008, it had issued guidelines and formula allocations for the new program, which it had dubbed the Neighborhood Stabilization Program. This program came to be known as NSP1.

The law provided that every state would receive at least $19.6 million (0.5% of the total $3.92 billion distributed), but, to ensure that each recipient would have a reasonable minimum amount of money to work with, HUD set a $2 million floor on direct allocations. The largest “winners” receiving NSP1 funding were Florida and California, reflecting their status as the nation's centers of foreclosure and default. Altogether, 309 separate units of state or local government were offered NSP funds. By March 2009, all had submitted plans for using the money, and funds had begun to flow.

NSP2 and NSP3

While HUD was approving NSP1 plans, Congress was moving forward with the American Recovery and Reinvestment Act of 2009, widely known as the economic stimulus bill. One of the many separate appropriations contained in this legislation was $2 billion for a second round of neighborhood stabilization activities, which came to be known as NSP2. Although the uses of NSP2 funds were the same as those authorized under NSP1, there was one particularly important change—reflecting the wishes of the new HUD leadership: Congress authorized HUD to distribute these funds on a competitive basis rather than allocating them by formula. Congress also authorized applications from nonprofit entities and consortia of public and private organizations as well as from state and local governments.

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