Chicago Neighborhood Stabilization Program Q&A

What is the Chicago Neighborhood Stabilization Program?
The August 2008 “Housing and Economic Recovery Act” authorized the almost $4 billion “Neighborhood Stabilization Program” for state and local governments to buy and rehab foreclosed property. Chicago received $55 million in the first round of NSP funding and $98 million in the second.

Can Chicago use the money to buy foreclosed property anywhere in the city?
No. The city’s share of NSP funds can only be used to buy property in certain hard-hit parts of the city. The 25 eligible regions of the city have high foreclosure rates and are areas where many homeowners took out subprime mortgages.

Which properties will the city buy?
The city gets lists of bank-owned properties, REOs, from banks and other sources such as the National Community Stabilization Trust. The NCST helps NSP communities acquire REOs. The city is evaluating properties on a rolling basis.

How does the city buy and rehab property?
The city will be subsidizing developers to do the work. Both for profit and nonprofit developers are eligible to participate in NSP. Many of the units the city plans to develop will be single family homes. In those cases, the city will sell the home to a developer for next to nothing and the developer will then sell the homes. For example, let's say the unit costs the city $50,000 to buy. The city sells the unit to a developer for a dollar; the developer then spends $150,000 to fix it up and sells it for $150,000, breaking even. Other units, multi-unit buildings, will largely be for developers who plan to rent completed units. In these cases the developer is expected to put equity into the property and take out a long term loan. The city will subsidize the loan.

Why would private developers participate when it doesn’t seem like there’s money in it for them?
Many developers don’t want to see other investments they’ve made in the past lose value because of surrounding board ups. Many of the NSP neighborhoods had been making positive strides in recent years before the foreclosure crisis hit.

When will newly rehabbed units be available for purchase or rent?
Officials managing NSP in Chicago believe that some units will be ready for occupancy in the spring of 2010. As of late August, 2009, officials had already made agreements to purchase dozens of units and that construction should begin soon once deals are closed.  The city hopes to use NSP funds to rehab, construct or demolish up to 2,500 units in the next three to five years.