Modesto risks losing $8.1 million in foreclosure relief funds from the federal government because the city hasn't found a way to spend the money effectively, even though it has known it was getting the cash for nearly a year.
The city set up its Neighborhood Stabilization Program differently from Stanislaus County, which buys foreclosed properties and resells them to first-time buyers.
Modesto put the onus on the buyers, leaving it up to them to find their own foreclosed houses, negotiate the sales and fix them up. Doing so would get the buyer a loan for a down payment and repairs.
It hasn't worked: No buyer has been able to navigate through the Modesto down payment program requirements and the turbulent real estate market. So, the $8.1 million Modesto received has yet to help a single family buy a home.
"It is not going as we hoped," acknowledged Carol Averell, Modesto's senior community development program specialist. "So we are looking at other ways we can utilize the money."
Averell said a proposal to shift the money away from homeowners will be brought before the Modesto City Council this month. She said the funds, instead, might go to organizations that would purchase foreclosed homes, perhaps for rentals or to resell.
Modesto has to make some kind of change, Averell said, or it will not be able to spend the federal money before next year's deadline. Any unspent funds will be taken back by Washington.
"It is very frustrating for people in a lot of jurisdictions because (the Neighborhood Stabilization Program) has so many federal requirements, and things keep changing all the time," Averell said. "If we knew then what we know now, we would have done things differently in setting up our program."
City Councilwoman Janice Keating agreed that buying foreclosed homes and reselling them would be a better use for the money. Keating said the federal government didn't take local market conditions into account when it designed the Neighborhood Stabilization Program.
"We weren't prepared for the fact that prices were at an all-time low, and these properties are being snatched up left and right by people who have more cash and better financing," Keating said. "Now, in the third-hardest hit area in the nation for foreclosures, we're not able to utilize any of that money, and there's a crying shame somewhere in that."
The city recently applied for a second round of Neighborhood Stabilization Program money. This time, it wants $25 million. If Modesto gets the funding, part of the money would be used to buy foreclosed homes, then rent them to people with mental illness and substance abuse problems, young people who have gotten too old for foster care and others who struggle to find housing.
For more information about Modesto's Neighborhood Stabilization Program, prospective buyers should call Carol Averell at 577-5310.