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Investing in one house pays dividends for a neighborhood, county officials say

This article first appeared in the St. Louis Beacon, Sept. 20, 2010 - The view out the new picture window at 9562 Bataan Drive is of neatly kept homes and smoothly mowed lawns -- a summer snapshot of a long-established street in Woodson Terrace.

Most of the compact houses in this neighborhood were built in the 1940s and 1950s and still have touches of the era: arched doorways and ceramic-tiled baths inside and big, shady trees outside. But this charmer on Bataan -- a 68-year-old, two-bedroom brick bungalow -- became a foreclosure statistic in March 2009, one of nearly 300 homes in St. Louis County taken back by lenders that month.

The house is one of 130 foreclosed properties purchased by St. Louis County with federal funds from HUD's Neighborhood Stabilization Program. Officials with the county's community development office hope that properties rehabbed through the program will serve as anchors, helping to stabilize neighborhoods against the flood of foreclosures still plaguing the U.S. housing market.

The county paid $39,000 for the home and spent an additional $80,000 rehabbing the property, according to listing agent Hayley Tomazik of J.F. Meyer Realty. The home is on the market now -- a spiffed-up version of its former self -- with kitchen and bathroom updates, a new roof, windows and energy-efficient appliances and heating and cooling system. The asking price -- to income-eligible buyers -- is $74,900.

Simple math says the county is selling the house at a loss -- about $44,000 less than the cost of purchase and repairs.

But county officials say the investment is intended to reach well beyond 9562 Bataan. Just as one foreclosure can spread decline by lowering property values and attracting vandalism and crime to a neighborhood, the hope is that this reclaimed property not only will stem that tide but also encourage other property owners to invest in their own homes.

"The county is trying to be proactive in saving neighborhoods,'' said Darlene Rich, housing programs manager for the county development office. "This program is not going to fix the neighborhoods, but if it can help stabilize a block at a time, then we've done what we set out to do.''

Treading water in a flood of foreclosures

Jim Holtzman, director of community development, said the county's strategy was to acquire one of the worst homes on a block and transform it into the best: a completely refurbished home that would not need major maintenance for 15 years.

The county is selling 85 NSP homes to low- and moderate-income families and offering financing incentives: forgivable loans if the buyers live in the homes for five years. This may also contribute to neighborhood stability because foreclosed properties are often purchased by investors and left vacant.

"We still have a foreclosure problem, but we also have a vacancy issue now,'' Holtzman said. "The houses may not be owned by the banks anymore; they're owned by investors. But they're still vacant.''

The Neighborhood Stabilization Program was part of the Housing and Economic Recovery Act of 2008 and provided an initial $3.9 billion in federal grants to state and local governments to redevelop vacant and foreclosed residential properties. The county received $9.3 million in NSP funds from HUD and an additional $9.1 from the state of Missouri, which had been allocated $42 million in NSP funds.

The county targeted neighborhoods in north county and in Lemay in south county.

"We targeted neighborhoods that had social fabric, some amenities but were being dragged down by one or two of these foreclosed homes,'' Holtzman said. "They are neighborhoods that were still somewhat healthy and strong.''

Selecting homes was complicated by the ever-growing number of foreclosures, Rich said.

"It is difficult because this is a moving situation,'' she said. "We'd start with one home on a street and find out later that five more homes were foreclosed."

Making the most of a drop in the bucket

The 130 properties bought by the county with NSP funding don't equal one month's worth of new foreclosures. 

In August, 431 foreclosures were completed in St. Louis County, according to statistics provided by Mike Duncan, information technology manager for the planning department.

The county's foreclosure tally through August of this year was 3,027, as compared to 3,925 for the entire year in 2009. Using postal vacancy data, Duncan estimates that 11,181 single-family residences are vacant in the county as of September, compared to 8,817 in September 2008.

And foreclosures will keep coming -- fueled continually by the nation's unemployment rate that is hovering at just under 10 percent, according to analysts at RealtyTrac, an online firm that markets foreclosures. They predict a record 1.2 million U.S. homes will be repossessed by lenders in 2010, as compared to 1 million in 2009.

Faced with the scope of the foreclosure problem, county officials concede that $18.5 million in NSP funds may sound like a large amount of money, but it doesn't go far.

"It's a drop in the bucket,'' Rich said, nodding her head.

Or, as Duncan put it, "NSP was a case of handing local governments a water pistol to use on a four-alarm fire. But I think the county has been able to make some effective use of the funds."

The county also had to move quickly because HUD required that the NSP funds be obligated to approved projects within 18 months -- or the funds would be withdrawn, Holtzman said.

The county worked with local developers and nonprofit housing agencies to identify projects and to determine rehab budgets. About 20 of the completed homes have either been sold or are under contract, and the county is stepping up its efforts to sell the remainder. Under NSP rules, the county keeps the proceeds from these sales to continue the program.

"Now that we've committed the money, let's get these properties sold,'' Holtzman said. "Strictly from the end result, there are great values out there. We'd like people to buy these homes so we can recycle the money and continue to buy more homes and fix them up.''

HUD recently announced another round of NSP funding that includes an additional $2.8 million for St. Louis County, but Holtzman said he doesn't know how those funds will be spent because the rules have yet to be released.

"We're not sure if we can use that additional money on properties we've already bought or if it has to be put toward newly vacant or foreclosed homes,'' he said.

Will the strategy work?

Time will tell whether the county's NSP strategy will work, said Todd Swanstrom, a public policy professor at the University of Missouri-St. Louis who has done extensive research on the impact of foreclosures. He believes the county was wise to partner with private and nonprofit developers because it is not in the business of buying and rehabbing properties.

Swanstrom acknowledges that the merits of a program that emphasizes long-term impact on a neighborhood may be difficult to quantify to taxpayers looking only at today's bottom line.

"If you take a private market point of view, it's a loser: You have a total investment of $180,000 and sell the home for $80,000. So, from a market point of view that seems like a total waste,'' Swanstrom said. "But the question is whether this will have a psychological impact on the block. Whether it has the effect of stopping contagious abandonment -- because otherwise the property might be one of the eyesores on the street. There is an externalities argument; even though this was subsidized deeply by the public sector, did it affect the neighboring properties enough that it justified that $100,000?"

Swanstrom said it made sense to target the NSP funds into semi-strong neighborhoods, instead of fixing one house in a far-gone area.

"If we have so little money, then we better target it very carefully,'' he said.

Mary Delach Leonard is a veteran journalist who joined the St. Louis Beacon staff in April 2008 after a 17-year career at the St. Louis Post-Dispatch, where she was a reporter and an editor in the features section. Her work has been cited for awards by the Missouri Associated Press Managing Editors, the Missouri Press Association and the Illinois Press Association. In 2010, the Bar Association of Metropolitan St. Louis honored her with a Spirit of Justice Award in recognition of her work on the housing crisis. Leonard began her newspaper career at the Belleville News-Democrat after earning a degree in mass communications from Southern Illinois University-Edwardsville, where she now serves as an adjunct faculty member. She is partial to pomeranians and Cardinals.