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States, cities ready to move on housing aid

The $4 billion in federal money will go for everything from rehab to foreclosure-prevention,

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Mr. Graziano wants Baltimore to partner with groups such as the St. Ambrose Housing Aid Center, which develops affordable housing. The nonprofit recently came to the city looking for $1 million to buy houses banks had repossessed. "I said, 'I don't have the money,' " says Graziano. "Now, we're eagerly awaiting the money."

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Cleveland may use the bulk of its money to demolish houses in blighted areas, says City Councilor Anthony Brancatelli, who has long been involved in affordable housing issues. "It starts with eliminating condemned and distressed properties that create negative value for property owners," he says. "We're looking at demolition as a way to keep people in homes."

Many distressed properties in Cleveland are small 900-square-foot houses. Mr. Brancatelli would like to see those properties combined so that a 2,000-square-foot house could be built. "With this money we can reshape neighborhoods and plan more thoughtfully," he says.

Unlike Cleveland, Trenton, N.J., does not expect to use the funds for demolition, says Mayor Douglas Palmer. Rather, he envisions using some of them to buy foreclosed properties, rehabilitating them and restoring the copper wire that has been ripped out. "Or we may try to find a way to provide a soft second mortgage so families can keep [their homes]," he says. (A soft second mortgage can be a subsidized loan for low-income residents, perhaps interest-free for several years.)

If the property is fixed up, Mayor Palmer envisions the city spending money to make the homes more energy-efficient. "This is an opportunity to make the homes green," he says.

In Miami, Diaz envisions the city using some funds for the police, reasoning that additional police activity is related to abandoned properties. "We would like HUD's rules to be flexible," he says. "Who knows better than a mayor or a housing commissioner how the money should be spent, compared to someone in Washington who has no clue about conditions in your city?"

Some states will receive funding even though they don't have many foreclosures. The new law gives every state a minimum 0.5 percent of the total pool of money.

In Vermont's case, that minimum amounts to $20 million. "To get $20 million is a pretty big deal for our state," says Molly Dugan, interim commissioner of housing and community affairs. "We don't have neighborhood after neighborhood of abandoned housing. And we don't have a lot of subprime mortgages."

But Vermont residents will face large heating bills this winter. "They have to make a choice: Which do I pay this month, the mortgage or the heating bill?" she says. "I am not saying we will use the money to fill up oil tanks, but we have to somehow figure out a way to lower the risk of future foreclosures."