Through the Neighborhood Stabilization Program, the City of Phoenix is implementing a program that will provide some home buyers with a $15,000 interest free loan to purchase a foreclosed property.
Don’t get too excited. . .
Yesterday I attended an information session held by the City of Phoenix regarding the Neighborhood Stabilization Program (NSP). I’ll attempt to summarize, and opine. Links for further information are at the bottom of this article.
What is the NSP Homeownership Assistance Program?
The NSP Homeownership Assistance Program provides a $15,000 loan for down payment and closing cost assistance for buyers of foreclosed homes anywhere in the city of Phoenix. The full amount of the loan is paid back to the city when the homebuyer sells the home or refinances. The program targets foreclosed single family homes, townhouses and condominiums (condo conversions are not eligible) that meet HUD Housing Quality Standards (HSQ). The Homeownership Assistance program is for down payment and closing cost assistance only and cannot be used to fund rehabilitation activities.
The $15,000 is a loan, and a lien will be placed on the home. It has to be repaid if the home is ever sold or the loan is refinanced. (Program officials noted that if you live in the home for 45 years, the loan payment becomes due, but a request for an “extension” will be available at that time.) Repayment is also due if the home is no longer used as a principal residence ”“ in other words, you can not convert it to a rental property.
- Can earn up to, but not more than 120 percent of Area Median Income (AMI) based on family size. All sources of income are considered. These limits are:
For example, a family of 4 has to earn less than $77,050 to be eligible.
- Must be creditworthy (as deemed by FHA).
- Must qualify for a 30 year, fixed rate loan (not subprime).
- Must invest $1,000 of your own funds.
- Must obtain a three-year home warranty, not to exceed $1500.
- Must complete a required eight hour Homeownership Education and Credit Assessment Counseling course at least 6 months prior to closing.
- Can not own ANY other real estate.
- Must maintain the home as your principal residence.
- Home must be located inside the Phoenix city limits.
- Must be a foreclosed, lender owned property.
- Must be appraised within 60 days of the purchase contract.
- Sales price must be at least 15 percent below appraised value.
- Must be clear of Phoenix’s top eight neighborhood code violations:
- Trash disposed of properly
- Cars parked in designated areas
- No visible outdoor storage
- No graffiti
- Fences maintained
- No inoperable vehicles
- No unsecured vacant buildings
- Maintained vegetation
- Must pass HUD Housing Quality Standards (HQS) inspection prior to close of escrow (this is a “safety and health” inspection, not a full-blown home inspection).
Phoenix has been allotted $38,478,000 in NSP funds, but only $2.82 million has been allocated for this particular program. I’ll do the math for you, that amounts to 188 homes that can be purchased through this program. Other programs using these funds will be announced later.
Funds are anticipated to be released later this month.
No specific areas or income levels are being targeted.
There is a $50 fee to take the required education class, but that is refunded at close of escrow.
There are not any “preferred lenders” ”“ you can use any lender of your choice.
Clearly, moving 188 foreclosed homes off the market won’t do diddly squat for the Phoenix real estate market. This isn’t the intent.
But, getting 188 people into a home that wouldn’t be able to do so otherwise isn’t necessarily a bad thing.
It’s in the details that the plan falls short.
Leaving aside the question of whether or not this is an effective use of almost three million dollars, this is a program that will disappoint far more than it will help.
The requirement that a home be purchased at less than 85% of appraised value is a fundamental flaw. I understand the reason ”“ the desire for built in equity, the need to not have someone be immediately upside down in their mortgage ”“ but I also understand the reality. Bank owned homes in Phoenix actually move relatively quickly, if they are reasonably priced. And banks are getting better at pricing their foreclosure inventory. If a REO (Real Estate Owned, aka bank owned) home is priced at a 15% discount, it’s going to be snapped up very quickly, probably in a multiple bid situation.
Then there is the propensity for appraised values to come in at or very near the offer price. Right or wrong, an appraiser knows the offer price before they complete the appraisal. The odds are excellent that if you offer $85,000 for a home, the appraisal is going to be $85,000 ”“ not the $100,000 you’d need to qualify under this program. The “market value” of a home is what a ready, willing and able buyer will pay. If you submit an offer of $85,000 that’s a strong data point in the appraisal that $85,000 is the market price, not $100,000.
REOs often receive multiple offers in the Phoenix market. If a bank gets two offers, one at $100,000 and one at $85,000 (the necessary 15% discount to be eligible for this program) which offer do you think they will accept? A program official said, “The banks are aware of this program and want to help.” Bullhockey. I can assure you that given a choice between two offers, the one with a 15% discount built into it will be swiftly tossed aside.
Then there is the cost of appraisals to consider. A good real estate agent can determine very closely what the appraised value will be. But appraisal isn’t an exact science. Using our example, let’s say you and your agent determine the home will appraise at $100,000. So you have to offer $85,000 to be eligible for this program. Your lender will order an appraisal. What happens if it comes in at $99,000?
The home you want, and just paid $300 for an appraisal on, does not qualify for this program.
Another program official said about this, “Your agent can get the appraisal changed”.
Yeah, good luck with that. Yes, it’s possible, but there are certainly no guarantees. Another option mentioned was “renegotiating the price”. Sure. Consider this”¦ you’ve just handed the owner a document saying the home is worth $99,000 and now you want to lower your original offer price to come in 15% below that.
Oh, but the banks “want to help”. No, they don’t. They want to get every nickel they can out of the deal for their investors. Other than their big hearts and desire to do good, banks have no motivation to help you get into a home.
How much heart and desire to do good do banks have?
Yeah, I thought so.
I’m not saying this program can’t work. There are currently 3,979 homes listed in the Phoenix city limits that are bank owned (assuming, which isn’t safe, they are correctly entered into the MLS). Are there 188 of those almost 4,000 foreclosures that can be bought for 85% of appraised value? I’m sure there are. Finding them won’t be easy. Finding one that no one else is interested in because you can’t enter into a bidding war ”“ your hands are tied with a maximum offer of 85% of what the home is worth ”“ will be practically impossible.
Links to further information:
Neighborhood Stabilization Program (NSP) Homeownership Assistance Fact Sheet (contains contact info for required home ownership education classes)
City of Phoenix application for NSP program (contains info on other parts of NSP plan)
HUD web page on NSP (more for municipalities that want to participate)