IMPORTANT BLOG EXCLUSIVE: Minnesota Housing Finance Agency's Draft NSP Plan Will Hurt Neighborhoods, And Fails To Comply With Federal Law

Photo By John Hoff

Once again calling upon the Johnny Northside blog to quickly spread information about a critical situation in our neighborhoods, Hawthorne Housing Director Jeff Skrenes has asked me to make the following public as soon as possible...

The headline on this blog post is my summary of the situation. The rest of the information comes verbatim from Jeff Skrenes, via email, and also from a letter forwarded by Jeff. The letter was written by Jerry Moore, Executive Director of the Jordan Area Community Council, Hawthorne's sister neighborhood on the other side of Emerson Ave. N.

First, the letter from Moore, as follows:

November 21, 2008
To: Dan Bartholomay, Tonja Orr
Minnesota Housing Finance Agency
400 Sibley Street, Suite 300
St. Paul, MN 55101

Re: Failure of MHFA draft NSP plan to comply with federal law; An alternative allocation which complies with federal law provides the central cities with an additional $9 million

Ladies and Gentlemen:

It is no secret Jordan Neighborhood along with many other urban communities have been the hardest hit by the foreclosure crisis. In the past, opportunities have surpassed us for various reasons. Currently, we are faced yet again with a federal resource that could provide substantial relief from our homeowner's crisis; however it is my understanding we are being overlooked for adequate funding.

The Neighorhood Stabilization Program (NSP) Draft Substantial Amendment made available by MHFA on November 7 misdirects at least $9 million of this important resource away from areas of greatest need in the central cities and fails to meet the statutory and regulatory requirements of the program in a number of important ways, thus jeopardizing NSP funding for the state.

It is clear to me that we cannot afford to sit idle on this issue in hopes appropriate allocations will be made. This is a prime opportunity for community and governmental partners to join forces to assure an equitable amount of resource is allocated to the 55411 zip code. In order to achieve this goal we must first be fully aware of what we are up against. The following information highlights in detail areas of concern.

1.) Failure to distribute funds to areas of greatest need

The federal statute requires that a state in distributing NSP funds "shall...give priority emphasis and consideration to those...areas with the greatest need." The statute provides that "areas with the greatest need" include those with the highest concentrations of home foreclosures and subprime loans. Similarly, the HUD regulations for the NSP program require that the state application identify the geographic areas of greatest need and demonstrate how its proposed distribution of funds will meet the statutory requirement that the funds be distributed to areas of greatest need.

It is clear that MHFA, in developing its proposal for distribution of its NSP funds, has failed to base its decisions on the factors required by the statute and regulations and has instead relied on factors which tend to obviate the federal "greatest need" requirement.

In effect, the MHFA has adopted a "slightly above average need" allocation formula rather than directing funds to areas of "greatest need" as required by federal law.

a.) Intentional diversion of funds from areas of greatest need

The first step in the MHFA's distribution plan is to rank zip codes by a weighted average of the statutory factors set out in the the statute (rate of foreclosures, subprime loans, defaults) compared to the weighted average for the state as a whole. The MHFA then includes in the priority area calculation 120 zip codes which have weighted average rates of problems which need be only slightly higher than then state average. (125% of state average)

Thus the MHFA's analysis starts by considering appropriate factors, but discarding the notion of "greatest need." The distribution calculation effectively allocates state NSP funds to each of these areas, many of which cannot reasonably be characterized as having the "greatest need."

The MHFA is quite open about this. The application states that the 120 zip codes were chosen in part on two factors that are not simply irrelevant to, but actually contradict the "greatest need" requirement: 1.) assuring that at least 50% of the state's subprime foreclosures are included. This consideration virtually assures dispersion of scarce federal resources away from areas of greatest need, 2.) "Balancing the distribution of funds between the Twin Cities metro area and Greater Minnesota." This consideration is obviously irrelevant to distribution of funds to areas of greatest need.

By replacing the "greatest need" requirement with what amounts to an "above average need," the state has diverted millions from low income minority areas devastated by irresponsible lending practices. There are no neighborhoods similarly affected by the foreclosure crisis outside of the central cities and two adjacent suburbs.

b.) An alternative which does comply with federal law allocates $9 million more to central cities

Attached as Exhibit 1 (not here included on this blog) are two spreadsheets illustrating the result of an allocation procedure which follows the proposed MHFA methodology exactly, except that it limits allocation of state NSP funds to zip codes with at least twice the state average concentration of problem loans (200% of the state average rather than 125%).

The first recreates the MHFA distribution spreadsheet, with the 200% cut-off; the second compares the results of this alternative allocation to that proposed by the MHFA. The result is that funds are allocated to 40 zip codes instead of 120 and an additional $9 million is allocated to the central cities.

Entitlement funds to Greater Minnesota zip codes are also increased substantially, but the competitive funds set aside in the MHFA proposal for Greater Minnesota are reduced so that Greater Minnesota has a net loss of $1.4 million. In addiction, the other competitive pools are reduced by $4.3 million and entitlement funds to metro area suburbs are reduced to $3.2 million.

2.) Failure to affirmatively further fair housing

A relatively few low income, disproportionately minority, neighborhoods have far higher rates of defaulted sub prime mortgages than any other areas of the state. See Exhibit 2 (not included on this blog) maps generated by the Institute on Race and Poverty at the University of Minnesota demonstrating the concentrations of loans held by persons of color, sub prime loans, and foreclosures in these areas.

These neighborhoods, located in the central cities and two suburbs adjacent to North Minneapolis, have been decimated by the widespread displacement of homeowners and by very high concentrations of vacant and untended homes--resulting in blight which quickly spreads to surrounding homes, destruction of the foreclosed property and by vandalism as well as lack of care by overwhelmed servicing agents, and increased opportunities for crime.

There are no other areas of the state which are so dramatically affected by irresponsible subprime lending and the foreclosure crisis and no other areas of the state where the adverse effects fall so disproportionately on minorities. Yet the MHFA has chosen to deliberately divert millinos of NSP funds, intended by Congress to address precisely these problems, to far less needy areas.

This not only runs counter to congressional intent, it violates the state's obligation under both the NSP and the CDBG legislation to act in ways which affirmatively furthers fair housing.

3. A critical clarification is needed.

Conversations with city staff working on this issue suggest that it is critical that MHFA clarify that local government proposals for MHFA funds need to propose to direct the funds to areas of greatest need, but that these areas need not be defined in precisely the way that the MHFA's allocation plan does. The MHFA has chosen to allocate funds based on the concentration of problem loans in zip codes. Needless to say, zip codes are rather blunt instruments which do not precisely track areas of greatest need.

For instance, the MHFA analysis indicates that zip code 55411 in North Minneapolis has the highest concentration of of problem loans in the state. Immediately south of 55411 is 55405, which includes a number of blocks in North Minneapolis with problems identical to those in 55411, but also includes the much more affluent Kentwood area.

It would be absurd to deny Minneapolis the ability to use NSP funds from the state in the North Minneapolis portion of 55405; just as it would be absurd to insist that Minneapolis must spend exactly the $2,482,799 allocated to 55411, no more and no less, in that zip code, rather than in that zip code and in similarly affected adjacent areas.

The MHFA allocation plan is silent on this issue and that silence appears to have many city staff convinced that areas suffering high vacancies as a result of concentrations of problem loans will be ineligible for use of state funds if not located in the zip codes used by the MHFA in allocated funds to specific governmental units.

In conclusion, I am sure you would agree sitting by idle is not going to assure an equitable amount of funding resource. Your voice is needed!

Yours truly,

Jerry Moore, Executive Director JACC

"Imperfect, But I Had No Idea HOW Imperfect"

Jeff Skrenes adds the following to Jerry's letter:

It's been in the papers recently that a whole bunch of federal money is coming to Minnesota to help communities combat the effects of the foreclosure crisis. Roughly $5.5 million will come to the City of Minneapolis and the State of Minnesota will get about $38.5 million. Some of the state money will come to Minneapolis, as well.

The public comment period for teh city money ended this morning. However, applications for the state money are not due until January 17, 2009. In all likelihod, entities such as GMHC (Greater Metropolitan Housing Corporation), Minneapolis CPED, the Home Ownership Center, and the Foreclosure Prevention Funders' Council will probably be the recipients of much of this money.

In my opinion, that's not a problem. My concern is that organizations on the front lines have a say in how that money is used. Specifically, community councils in North Minnepolis neighborhoods hardest hit, our foreclosure prevention counselors and their agencies, ACORN (I know they get a bad rap right now, but frankly who else does grassroots organizing around financial justice issues?) and the Minneapolis Urban League should be heard from as we progress. Collectively, many of these organizations are part of a coalition called the Northside Community Reinvestment Coalition.

Back to the nitty gritty of the money coming to Minnesota: This is where it helps to have two sets of eyes, and you'd be surprised who catches what. I looked at 85 pages of mortgage policy documents regarding these funds and came away thinking that we were in pretty good shape about how things were allocated. That is...until I read the letter (above) from Jerry Moore, Executive Director of our neighboring Jordan Area Community Council.

I know that federal dollars allocated as quickly as these were are often given using an imperfect system, but I had no idea how imperfect. Even so, I saw that North Minneapolis wouldn't have time to really make our voices heard regarding the initial $5.5 million. Instead, we must engage our city officials regarding who applies for the state money and what they want to do with it. And here's our opening:

When entities apply for the state funds, here is part of the application criteria:

"Neighborhood improvement Efforts. Applicants must describe existing or anticipated neighborhood improvement efforts to:

* Encourage commercial development.

* Improve safety.

* Improve schools.

* Develop and improve parks and recreation.

* Improve transportation and streets.

* Improve landscaping, sidewalks, and medians, and

* Engage citizens in neighborhood stabilization.

Take a look at that last line. ENGAGE CITIZENS IN NEIGHBORHOOD STABILIZATION. That is EXACTLY what the community councils are doing, as well as ACORN, NCRC, and others. I am not sure if it makes sense for any of us to go after this money, (though). I wouldn't discourage it, but I doubt I have the time or ability to get a viable application of this nature done by January. Instead, I think it's better for us to engage the city and others regarding what money is applied for and how it may be used.

I spoke with a city official last week about this tactic. Her initial response was that there probably wouldn't be enough time to get a huge community meeting together and then take that input and really incorporate it into the application process. I honestly don't think she was trying to get out of it; time is really of the essence, here.

So my response was that the staff of the community councils does a pretty good job understanding, articulating, and representing those community needs. And even the chance for a meeting between her department and various neighborhood staff with a chance to have an impact on the outcome would be more than we typically get.

Her response: "Set it up and I'll be there."

So where do we go from here? People who want to have input should contact Jerry Moore at Jordan Area Community Council or Jeff Skrenes at teh Hawthorne Neighborhood Council. The two of us, along with others that join along the way, will be meeting with the city shortly. We want neighborhood input and ideas that we can bring forward. Based on the criteria set forth by the state, THE CITY NEEDS OUR INPUT TO MAXIMIZE THE NECESSARY DOLLARS COMING OUR WAY!

And they are open to our ideas. But time is short. Contact us, and we'll make your voices heard!

FOR JORDAN, CALL THE JORDAN AREA COMMUNITY COUNCIL at 612-886-3202 (Jerry Moore, Executive Director)

FOR HAWTHORNE, CALL JEFF SKRENES, HOUSING DIRECTOR, at 612-529-6033 (x204)
or his cell phone at 952-210-1086.

ADDENDUM: Emails for these guys, which are much more convenient than phone calls, are as follows: jskrenes@hawthornecommunity.org, jmoore@jordanmpls.org.

I was also told by Mark Ireland, an attorney who has worked for Hawthorne on predatory lending issues, that The Housing Preservation Project sent a letter similar to the one written by Jerry Moore, and Ireland will make an attempt to obtain a copy and forward it.