Chapter Page 1 I. OVERVIEW OF THE COMMUNITY STABILIZATION PROGRAM WHAT IS THE PROBLEM? Many cities are faced with the problem of finding an alternative way to deal with the large number of single-family properties within their boundaries that have been abandoned by their owners. Many of these properties were financed with mortgages insured by the Department of Housing and Urban Development (HUD) under programs aimed at providing housing for lower income families. Each time one of these homeowners defaulted and his or her mortgage was foreclosed, HUD paid the lender's mortgage insurance claim and became the owner of the property. The Department has therefore acquired many of the abandoned properties and usually boards them up until it can dispose of them. The presence of large numbers of vacant houses has a blighting effect on the surrounding neighborhood and is an invitation to vandals. A frequent reason for abandonment is the failure of properties to appreciate or maintain their value; some properties in blighted neighborhoods actually decline in value. When a property owner discovers that he cannot realize enough from the sale of his house to pay off the mortgage and will actually have to pay out of his own pocket to sell it, he may choose simply to abandon his property. There are several factors that contribute to this situation. Among them are unrealistically high original mortgage amounts, a reduction in the demand for housing in the neighborhood, and greater number of properties for sale than the market can absorb. All of these factors combine to detract from property appreciation. As the number of abandoned properties grows, the appearance of the neighborhood worsens. Vacant houses are often vandalized and begin to deteriorate. Many properties are boarded up and, thus, are obviously deserted. The resulting appearance of neglect is damaging to community pride and cohesiveness and makes the neighborhood less desirable to prospective purchasers. This reduced demand results in still lower sales prices for owners and a continuing spiral of further abandonments, vandalism, neighborhood blight, loss of community pride, and other undesirable effects. As the neighborhood's deterioration discourages buyers, it also increases the desire on the part of many residents to sell their homes and move to a more pleasant and stable area. Even in economically stable communities, it has been found that prices may be depressed and equities deflated when more homes are offered for sale at one time than the market can absorb. In an already distressed neighborhood, this kind of situation has a more pronounced effect. WHAT ARE THE POSSIBLE SOLUTIONS? After HUD acquires a property for which it had insured the mortgage, its policy is to dispose of it by one of several methods, such as repairing and selling it, selling it in "as-is" condition, or selling several in bulk to developers. These methods are effective when there is a reasonable real estate market and the number of properties offered for sale in one area is not large enough to depress prices. However, when these conditions do not exist, special efforts are required to return HUD-owned properties to the market place in a way that will restore cohesion and stability to a neighborhood that is in distress. WHAT IS THE COMMUNITY STABILIZATION PROGRAM? HUD is experimenting with several programs for aiding these distressed neighborhoods. One of them is the Community Stabilization Program being conducted in Dover Estates, a subdivision in suburban Taylor, Michigan, near Detroit. The project is based on the concept that the preservation and growth of a homeowner's equity are the most important deterrents to abandonment and that any policies that increase appreciation rates--and thus equities--are, in effect, treatments for the problem of abandonment. Under this program, HUD-acquired properties are removed from the sales market until the neighborhood and real estate market conditions can be stabilized. The concept further assumes that, if the free market forces of supply and demand are only temporarily out of balance, then removing equity depressants (by repairing deteriorated properties for rental occupants) will encourage the balancing of these forces. This will help real estate prices to increase to a point at which a homeowner will be able to realize some equity appreciation from the sale of his property. |