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**[Mitigating the Impact of Concentrated Foreclosures on
Neighborhoods:]{.underline}**

**[A Multi-City Pilot to Prove What Can Work]{.underline}**

**Summary**

Living Cities ([www.livingcities.org](http://www.livingcities.org/)) is
the most enduring corporate and philanthropic collaborative in the
world.  For over fifteen years, this extraordinary partnership of
leading foundations, such as Ford, Gates, Rockefeller and Robert Wood
Johnson, and financial institutions, such as Bank of America, Chase and
Met Life, has pooled their money and invested more than \$543 million in
23 cities - leveraging more than \$15 billion.  This funding has allowed
community development intermediaries and corporations to lead an
incredible recovery from the devastation and disinvestment in the
decades leading up to the 1990s.

However, the current subprime mortgage crisis threatens to reverse the
incredible progress that these communities have experienced.
Foreclosures, like the subprime lending that precipitated them, have
been heavily concentrated in these vulnerable neighborhoods, and the
resulting vacant and abandoned properties threaten values of neighboring
homeowners, invite crime, and discourage further investment*.* The time
to find promising approaches for addressing these realities is now.

Living Cities is thus making \$5 - 10 million available to fund the most
promising local approaches for returning foreclosed properties to
productive use.  We are supporting the creation of ten models in strong,
moderate and weak housing markets, in places as diverse as Cleveland,
Dallas, Detroit, Massachusetts, New York City, Rhode Island, Twin Cities
and Washington, DC. By providing financial and non-financial resources
to these ten sites, Living Cities is helping to build innovative, local
solutions that we believe will provide blueprints for the future.

**Background**

In November 2007, Living Cities convened a brain trust of high-level
staff from the nation's leading community development funders and
intermediaries. Organizations represented included Living Cities'
members such as the Ford, Annie E. Casey, Kresge and MacArthur
Foundations, Bank of America, Chase, Deutsche Bank and the U.S.
Department of Housing and Urban Development. Organizations outside
Living Cities were also engaged such as NeighborWorks, Open Society
Institute, Housing Partnership Network, and the National Governors'
Association. This working group set out to identify interventions that
would capitalize on Living Cities' unique position and achieve
meaningful impact with limited resources. Under the working group's
direction, Living Cities set out to explore interventions focused on
putting vacant, foreclosed properties back into productive use.

Recognizing that there is no "one-size-fits-all" solution to the
foreclosed property problem, Living Cities approached coalitions that
have formed in over a dozen markets of varying dynamics to learn more
about their work, their needs---financial as well as non-financial---and
the roles Living Cities might play in supporting their initiatives. We
sought to identify at least one pilot in a weak-market city, one in a
moderate or mixed market, and one in a strong market. The most promising
projects had the following characteristics: (1) readiness -- operational
by the end of the second quarter of 2008; (2) replicability -- elements
of the model had great potential for being replicated in other
communities in the near term; (3) impact -- able to reach critical mass
by affecting hundreds of units over two to three years; (4) resources -
have local capital, data, organizational and leadership resources
available; and (5) need - Living Cities funding would make a significant
difference.

**Our Models**

As described below, Living Cities is supporting eight local initiatives
that are committed to purchasing and disposing of (by sale, lease or
demolition) foreclosed homes. Although each initiative shares this
common objective, no two solutions are the same. For example, we are
supporting the creation of new local organizations (New York), the
repurposing of existing organizations (Dallas) and even the creation of
statewide responses (Massachusetts). While these pilots have been
projected to reach 1,000 or more properties this year, more importantly,
they will enable us to learn what works in current market conditions and
help others scale similar efforts around the country as federal support
becomes available.

Our ten grants, totaling nearly \$5,000,000, will be awarded to:

-   **Chicago:** Long known for its aggressive leadership in the housing
    arena, the City of Chicago is creating a public-private entity that
    will oversee and coordinate targeted revitalization efforts in key
    areas of Chicago affected by foreclosures. After acquiring
    distressed properties from HUD and loan servicers on a bulk basis,
    the entity will demolish about 1/3 of the units and convey the rest
    to a very strong set of local organizations focused on housing and
    community development. These groups will rehab the houses for sale,
    for lease-to-purchase, or for rental. Chicago has more than 80,000
    single-family "bungalow"-style homes, plus many additional "frame"
    homes. A significant portion of these will be of sufficiently high
    quality that it does not make sense to demolish them, but will not
    be saleable due to the soft housing market. As a result, an
    important goal of this strategy will be to create a financially
    sustainable model for single-site rental.

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-   **Cleveland:** Even before the foreclosure crisis arrived,
    Cleveland's Neighborhood Progress, Inc. (NPI) was recognized as
    unique for its market-based yet community-driven approach focused on
    six neighborhoods. NPI's work in this area builds on this
    infrastructure and experience and is intended to prevent foreclosed
    properties from negating the significant gains NPI has made in these
    neighborhoods. NPI is also notable in its commitment to demolish
    properties for which there simply will be no demand. Cleveland, like
    many other weak-market cities, has suffered from severe
    out-migration in previous years, and there is no indication that
    this trend will reverse itself in the near future. In addition, the
    initiative benefits from a remarkably sophisticated data system,
    called NEO CANDO, developed by Case Western University. The system
    can identify borrowers in various phases of distress and actually
    help. Furthermore, the initiative has reached an agreement with
    major servicers in Cleveland that will literally freeze the
    foreclosure process for ninety days to allow borrowers to work out
    alternatives to foreclosure. NPI can thus prevent vacant properties
    from coming onto the market in their target neighborhoods in ways
    that virtually no other pilot can, and thus lower the "critical
    mass" of properties required to stabilize their neighborhoods. They
    expect to acquire 150 homes in their first year, rehabbing and
    selling 50 and demolishing 100, and to prevent 100 foreclosures.

-   **Dallas:** Several features make Dallas' pilot unique. First, it
    has the potential to serve as a model for other mixed-market,
    Southwestern cities such as Las Vegas, where real-estate development
    got ahead of demand but where demand is eventually expected to catch
    up. Second, it repurposes an existing, similar entity, developed by
    Enterprise Home Ownership Partners (EHOP-Dallas) to acquire, rehab
    and sell vacant properties owned by the Federal Government through
    its Asset Control Area program. Furthermore, EHOP-Dallas has made
    progress in negotiating the purchase of foreclosed properties out of
    Countrywide's portfolio. Similar negotiations between nonprofit
    developers and servicers have been a key sticking point for
    initiatives across the country. Finally, EHOP-Dallas is developing
    an innovative lease-purchase product for potential homeowners who
    lack the credit-worthiness to get into a prime loan right away. In
    aggregate, EHOP-Dallas plans to work with over 300 homes in its
    first year.

-   **Detroit:** Detroit's initiative arises from a distinct set of
    circumstances. First, Detroit's real estate market has been one of
    the country's weakest relative to other large cities. With vacant
    properties expected to constitute one fourth of the city's housing
    stock within the next three years, Detroit faces a problem that
    dwarfs its available resources and greatly exacerbates its existing
    problems. As a result, it has developed a plan to stabilize two
    particular neighborhoods by acquiring, rehabbing and selling
    foreclosed properties where appropriate, and demolishing them where
    the demand is not supported. Of particular note is the unique role
    of philanthropy in the initiative's leadership: local and national
    foundations including Kresge, Kellogg, Ford and Skillman have pooled
    their resources to create a central office to coordinate the
    disjointed responses to the crisis throughout the city. This Detroit
    Office for Foreclosure Intervention and Response expects to handle
    250 properties per year.

-   **Los Angeles:** Neighborhood Housing Services of LA (LANHS) is
    piloting a model with promise for markets that were especially
    overheated and are now cooling rapidly. Partnering with its partners
    through the LA Center for Foreclosure Solutions, LANHS plans to
    assist 380 borrowers over two years. When foreclosure is inevitable
    for a client of the Center's foreclosure prevention counseling
    services, LANHS will work to transfer that property to a
    pre-qualified low-or moderate- income buyer.  Exiting borrowers will
    be provided with relocation assistance and financial recovery
    services.  NHS will also acquire REO properties from servicers,
    using the sharp depreciation in LA-area home values as a substitute
    for the significant price markdowns needed in many other markets. 
    LA NHS has REO agreements with several servicers providing for
    discounts from current market value in some cases.  They will
    provide silent seconds to buyers in order to help subsidize purchase
    costs.  LA NHS is also in discussions with the City about how its
    role in the deployment of LA's appropriation of federal neighborhood
    stabilization funds.

-   **Massachusetts:** Government officials, foundations and nonprofits
    have joined together to create a \$20 million Neighborhood
    Stabilization Fund. The fund, which will officially launch later
    this month, will support the purchase, rehab and resale/lease of
    foreclosed properties to working families statewide, starting in
    three cities: Boston, Chelsea and Lawrence, and expanding to others
    over time. The Fund is unique in light of the strong political and
    financial commitment of Governor Deval Patrick and regional
    foundations including the Boston Foundation and the Hyams
    Foundation, and their commitment to working in multiple cities
    across the state.

-   **Minneapolis/St. Paul:** As a complement to its aggressive
    foreclosure prevention efforts, the Mortgage Foreclosure Partners
    Council will acquire, rehab and dispose of foreclosed properties
    while simultaneously developing innovative financing products that
    will enable them to reach a wider range of borrowers, enhancing
    their ability to dispose of the properties they have acquired. Given
    the diversity of neighborhood types in the Twin Cities and the
    volatility these communities have experienced since the onset of the
    crisis, the ability to reach more potential occupants is paramount
    to initiative success. In addition to the potential these products
    have to assist prospective homebuyers in Minnesota, these products
    could be replicated in other cities, potentially reaching
    significantly more people per year.

-   **New York City**: The Center for New York City Neighborhoods, a
    joint project of the City of New York, the Open Society Institute
    (part of the Soros Foundation Network) and many others, is
    developing two neighborhood stabilization programs. The first is an
    acquisition/rehab/disposition strategy similar to that in other
    cities. Of even higher interest to Living Cities is the second
    program: a mission-driven, nonprofit broker (MDB) for short sales.
    Because housing demand in NYC remains, most properties never make it
    to foreclosure sale, but rather are short-sold. If these properties
    are purchased by speculators, they can quickly change a
    neighborhood's character. The MDB will facilitate the short sales of
    homes to working families, keeping them in productive use. This MDB
    is also being watched by a collaborative of government officials in
    five other large, high-cost cities, including San Francisco. The
    Center expects to work with 90 families in its first year and handle
    500 properties through its acquisition/rehab/disposition program.

-   **Rhode Island:** The Rhode Island model utilizes a statewide land
    trust. The land trust will hold title to the land while selling the
    homes built on the land, allowing them to preserve the affordability
    of the homes for future buyers. The land trust is also noteworthy as
    a response from a region anchored by smaller cities, such as
    Providence, which often lack the extensive financial and
    organizational resources of larger cities like New York and
    Washington, DC. The land trust plans to handle up to 100 properties
    in its first year.

-   **Washington, DC:** A unique element of this initiative is its
    proposed use of the New Markets Tax Credit as an element of
    financing neighborhood stabilization. The grantee, City First
    Enterprises, will also benefit from an unprecedented long-term
    commitment from the District of Columbia to a 10,000-unit project
    that will permanently preserve affordable housing for working
    families. As part of this project, CityFirst will pilot a program to
    purchase homes out of foreclosure, fix them up and sell them to
    working families while providing a \$75,000 "silent" second
    mortgage. In exchange, the homebuyers or homeowners facing
    foreclosure will agree to share 25% of the future appreciation of
    the unit with CityFirst, which CityFirst will eventually use to
    subsidize the sale of the home to the next homebuyer. They plan to
    assist 100 households in their first year.

In addition to grant funds, Living Cities is considering requests from
these grantees for patient capital, long-term, low-interest rate loans
from Living Cities Catalyst Fund, a new \$17 million pool of funds
provided through program related investments from Living Cities'
members. Decisions on these loans will be made later this year. We are
creating a technical assistance pool, from which our grantees will be
able to draw up to \$10,000 each. They plan to use these funds for a
variety of purposes, including support for negotiating the purchase of
foreclosed homes from servicers, improving their data resources, and the
development of new program components

For information contact: Tamir Novotny, 646-442-2206,
tnovotny@livingcities.org.