Federal Housing Program on Hold

A program that was supposed to sell as many as 1,700 rehabilitated homes in Los Angeles to low-income buyers is being threatened by the federal government’s decision to suspend a nationwide initiative to restore foreclosed properties for sale to the poor.

The U.S. Department of Housing and Urban Development has suspended the national pilot program, which allowed nonprofit organizations and local governments to buy foreclosed properties at a discount and then sell them to low-income buyers at affordable prices.

HUD decided to suspend the program after a report by the agency’s inspector general found that three cities--San Bernardino, Washington, D.C., and Rochester, N.Y.--had violated various guidelines.

Among violations cited were failing to rehabilitate homes and selling properties for excessive prices.

Local housing officials said the suspension will reduce the availability of inexpensive, subsidized homes in Los Angeles.

“What this is going to mean is that there will be the same level of interest [by low-income home buyers] with very few homes,” said Ann Sewill, director of California programs for the Enterprise Foundation, which administers the program in Los Angeles.

Thousands of residents have expressed interest in the cut-rate homes, and scores more have been attending home-buyer classes--a requirement for participation in the program, Sewill said.

The foundation, which has earmarked $32 million to purchase and substantially rehabilitate the nearly 1,700 properties, had already bought 235 homes in the city of Los Angeles.

In San Bernardino County, which also operated under contract with HUD, the program is credited with revitalizing neighborhoods. As of February, the county had purchased 572 properties, with 406 rehabilitated and sold.

Nationwide, HUD has made such agreements with 16 agencies or local governments.

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HUD Is Assessing Program’s Efficacy

But the department has formed a task force to assess the national program’s effectiveness and to develop program regulations. Its inspector general’s report cited a host of problems, including the department’s failure to implement regulations and establish monitoring procedures.

Those poor controls reportedly allowed some homes to be sold at high prices and others without being rehabilitated.

In some instances, the local nonprofits had turned their operations over to for-profit developers, a HUD spokesman said.

“We’re going to insist on accountability and results,” HUD Secretary Mel Martinez said in a statement Friday. “This program review will continue until there is no doubt it produces positive results for communities.”

According to the report, San Bernardino County purchased low-priced HUD homes and then sold them to the city of San Bernardino at a discount.

The reports said the city, however, resold the homes to for-profit developers, who sold them to homebuyers at market price--in violation of program rules.

The county no longer sells homes to the city of San Bernardino, the report said.

Tom Laurin, director of the Department of Economic and Community Development for San Bernardino County, said all the problems raised in the report have been corrected.

In fact, the county’s contract with HUD has been “extended indefinitely,” he said, and the county continues to purchase HUD homes.

The HUD task force is scheduled to study the program for six months. No agreements will be renewed with local agencies during this period, officials said.

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Suspension a Tough Blow for Los Angeles

The news is a tough blow for Los Angeles, where Enterprise Home Ownership Partners has been welcomed as a much-needed player in the move to increase homeownership among the poor.

Los Angeles is home to more renters than any other city except New York.

Under the agreement with HUD, Enterprise was a preferred buyer of homes in an “asset control area” that included Watts, Canoga Park, Boyle Heights, Highland Park, Pacoima and parts of South Los Angeles.

The contract allowed the Enterprise Foundation to purchase homes at a 50% discount. The foundation then worked with other organizations to rehabilitate the homes.

In addition, the Los Angeles Housing Department assists low-income buyers by providing additional financing.

Enterprise celebrated the sale of its first home to a Boyle Heights family in February, and elected officials praised the collaboration for increasing homeownership while at the same time relieving neighborhoods of blighted HUD properties.

Residents in some neighborhoods have long complained that HUD properties often become magnets for gang members and drug users.

The program is also a key element of the Los Angeles Housing Authority’s plan to boost homeownership among the poor.

The agency planned to debut a program later this month to allow some people with federal housing subsidies to use the so-called Section 8 vouchers for mortgage payments on homes instead of for rent.

The Enterprise Foundation is one of two local sources of affordable, subsidized homes in good condition, said Steve Renahan of the city’s Section 8 program.

The loss of recycled homes will make it “very difficult” to find low-cost homes in Los Angeles for people with federal housing vouchers, Renahan said.

Last week, Reps. Lucille Roybal-Allard and Xavier Becerra, both Los Angeles Democrats, urged Martinez to extend HUD’s agreement with Enterprise, arguing that the Los Angeles program “has not suffered from any of the issues identified by the HUD inspector general’s report.”

“It is helping low-income people achieve the American Dream, strengthening the local tax base and economy, and ending the devastating cycle of foreclosure in our neighborhoods,” the lawmakers wrote.

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Homes Already Bought Unaffected, HUD Says

HUD officials said the suspension should not affect local organizations and governments, suggesting that they can continue to rehabilitate and sell properties that they have already purchased.

But Enterprise collaborates with 53 other agencies, Sewill said.

And the program, 18 months in the making, relies on the constant supply of homes that only HUD can provide.

“If we interrupt that pipeline,” Sewill said, “we will have to rebuild that whole system.”