Prepared Remarks of Secretary Shaun Donovan at the Reclaiming Vacant Properties Conference

Cleveland, Ohio

Friday, October 15, 2010

Thank you, Dan. I want to thank you, the Center for Community Progress and Neighborhood Progress, Inc. for holding this important conference at such an important moment.

I also want to thank all the practitioners here today -- who are doing the difficult work on the ground to stabilize our nation's communities.

Most of all, I want to thank you, Dan -- for that introduction and for your visionary leadership at the Center and in Genesee County for so many years.

When it comes to helping the cities and communities that made this country great find their footing and make the most of their unique assets, we are so fortunate to have you as a partner.

Indeed, today I want to discuss the new tools the Obama Administration is providing, the new partnerships we are forging and the new foundation we helping you build -- to help you not only reclaim vacant properties, but reclaim your communities in the face of an economic crisis that has devastated neighborhoods across the country.

A Difficult Time

We all know this is a tough time for our housing market -- and for families. But it's particularly appropriate in many ways that we meet here in Ohio, "the heart of it all," as the saying goes.

In states like this, communities face the same challenges every other is facing -- from foreclosures to budget cutbacks that make it harder to deal with those foreclosures.

But like many of America's industrial bases, this state also faces challenges that have lasted not years, but decades.

We all know what Ohio represented in the last century, when communities like Cleveland and Akron were synonymous with the great American Middle Class.

These communities were central to the very American idea that, no matter who you were, if you were willing to work hard for a living, you could earn a decent wage, retire with dignity and pass on a better life to your children.

We all know how that dream was eroded these last several years -- most recently by nearly a decade of failed economic policies and an economic crisis that have left no community untouched.

Indeed, while the economic crisis has hit this state particularly hard, this crisis reminds us that the problems facing your communities didn't simply appear overnight.

I don't need to tell you that the challenge of developing new industries that respond to new global markets isn't unique to Ohio. Communities from North Carolina to Pennsylvania to Alabama that depended on manufacturing for decades have found themselves in recent years struggling in different ways to replace industrial bases that have moved offshore.

As a result, while every community has suffered during this crisis, states like Ohio have felt the pain harder and longer –experiencing disinvestment, population loss that have led to higher delinquency and foreclosure rates.

New Tools

Obviously, the most important thing we can do is help families keep their homes.

We all know that the HAMP program got off to a slow start -- in large part because we wanted to get it up and running as soon as possible.

But servicers report that between HAMP, FHA's loss mitigation programs and other private modification efforts, more than 3.3 million borrowers have received restructured mortgages since April 2009. That's more than twice the number of foreclosures completed in that time and is one of the reasons we've been able to bring down foreclosure starts by 30 percent from a year ago.

But as President Obama has said time and again, we can't stop every foreclosure -- and won't.

For Ohio, the good news is that while we have seen the number of serious delinquencies increase, the number of completed foreclosures have fallen, which suggests that banks are working on modifications.

The bad news is, given that the number of REO in bank inventory remains high according to the latest RealtyTrac numbers, it would appear that banks are falling behind the volume of new REOs entering their inventory.

I don't need to tell this audience about the debilitating effect foreclosed homes have on neighborhoods and often lead to blight, neighborhood decay and reduced property values, feeding a vicious cycle.

Back in 2008, the Center for Responsible Lending estimated that homeowners living near foreclosed properties would see their property values decrease $5,000 on average.

That's why reclaiming vacant properties is so important -- and that's precisely what the Neighborhood Stabilization Program helps us do.

Through three rounds of funding, the last of which was included in the Dodd-Frank Wall Street Reform bill, NSP has provided communities with a total of $7 billion –nearly half a billion of which has been provided to Ohio.

All told, we expect NSP will impact 100,000 properties in the nation's hardest-hit markets -- which makes up 20 percent of the REO in NSP-targeted areas.

Already, grantees report that more than 36,000 of these properties are either under construction or rehab -- putting us about a third of the way there. Collectively, we believe will have ripple effects on our local, regional and national housing markets alike.

New Partnerships

Of course, this is a job government can't do alone. But in community after community throughout our recent history, we have seen what is possible when we engage partners with expertise rooted in a specific place.

In New York City, I saw the revitalization of the South Bronx made possible not simply by government investment -- but by a "Third Sector" of philanthropies, non-profits and community development corporations who leveraged those dollars and have since become some of our most innovative housing developers and most important civic institutions.

I've seen it again over the last 20 months in the Gulf Coast where the single-largest volunteer and non-profit effort in the history of the country has helped over 90 percent of the pre-storm population return and helped 98 percent of families who were still in trailers or using emergency vouchers when we took office move into permanent housing.

And so our challenge today as we work to stabilize the neighborhoods hardest hit by foreclosure is to tap the potential of these partnerships -- to bring speed, flexibility, and the day-to-day working relationships these organizations have with local businesses, non-profits and state and local governments to the table.

That was the goal of the $2 billion competitively-awarded second round of NSP funding, which provided $175 million for the State of Ohio and nearly $41 million for Cleveland and surrounding communities here in Cuyahoga County.

Under the innovative plans Ohio submitted, communities are using this funding to address more than 4,500 homes across the state.

Communities in Cuyahoga County are land banking some 80 currently vacant properties -- helping communities purchase these properties and redevelop the land as part of a comprehensive revitalization strategy or sell them at a profit to the taxpayer in the months to come.

Columbus is acquiring and rehabilitating nearly 150 foreclosed or abandoned properties and redeveloping another 100 homes.

Communities like Toledo and Springfield are providing counseling and homebuyer loan assistance -- taking properties off the market at the same time families acquire the financial literacy tools necessary to ensure they are in an affordable home with a stable mortgage.

In Hamilton County, you see that these aren't simply bricks and mortar rehabilitation plans -- but part of a larger strategy to target struggling neighborhoods in communities like Evanston which are anchored by schools, transportation and other institutions and services we know are essential to the ongoing success and revitalization of any community.

Leveraging related federal investments in Ohio, such as CDBG grants and foreclosure counseling, this funding complements local economic revitalization partnerships that bring together a wide variety of stakeholders, from state agencies and local governments to hospitals, churches, the business community and Community Development Corporations.

By making multi-sector consortia eligible for funding under NSP II, we made Neighborhood Stabilization the comprehensive community development tool it needs to be for communities struggling with foreclosures, unemployment and long-term disinvestment.

The goal of our recently-announced First Look partnership is to transform the REO process itself -- bringing the Third Sector's speed, flexibility, and on-the-ground experience to a process that has lacked those characteristics in too many instances and too many communities.

Based on a pilot forged by the National Community Stabilization Trust and the nation's leading financial institutions, First Look gives NSP grantees an exclusive 12-to-14 day period to evaluate and bid on properties before others can do so.

It's based on a simple idea:

That instead of the "retail" strategy so many communities resort to when it comes to neighborhood stabilization--establishing individual relationships with financial institutions, negotiating the best price one house at a time--we should be creating a wholesale strategy -- and market power.

And you only need look at Montgomery County here in Ohio to understand just how potent a combination NSP resources and First Look can be.

In the Huber Heights suburb outside of Dayton, you can see a community that in the last three years faced a 30 percent decline across the board in property values. These are middle-income neighborhoods with one or two vacant, foreclosed homes on virtually every block.

The County has targeted 2,000 homes in this community -- about 200 of which were vacant when NSP dollars first hit the ground. Currently, they have been able to purchase 35 homes -- over a third of the total it expects to in the next three years, rehabilitating them to green and energy efficient standards.

You might think that less than dozen acquisitions might not make much of a difference.

But you'd be surprised. Already, neighborhood property values have not only begun to stabilize, but actually increase.

That's because, for Montgomery County, instead of working with what could be as many as a dozen financial institutions servicing the mortgages on any given block, First Look has given them tools like REO Match -- a fully automated, free mapping and property management tool which allows grantees to know what properties are available and who owns them.

First Look also brought much-needed speed to the REO process -- which is particularly important given data that shows vacant and abandoned homes are more than three times as destructive to home prices as homes that have only begun the foreclosure process. So, getting these properties sold before they become abandoned is absolutely critical.

With the country's leading financial institutions participating in First Look, accounting for more than 75 percent of the REO inventory, we expect First Look will cut the traditional 75-to-85 day REO process in half.

First Look also brings the right kind of partners at the table -- not only financial institutions and Third Sector actors, but also organizations like National Council of La Raza and the National Urban League, ensuring that for some of the hardest hit communities in this crisis, we are crafting the right kind of solutions -- whether it is providing more sustainable homeownership opportunities, increasing the availability of affordable rental housing for families, or taking these properties off the market until they can be sold when the market returns.

It's a game-changing, market-oriented and cost-effective approach.

Game changing in the sense that instead of just buying the next 10 or 20 distressed properties that become REO, we can help communities selectively pick the most strategically important properties, whether they are REO, short sale or deed-in-lieu.

Market oriented in the sense that instead of working with a few REO servicers, we can work with all the major financial institutions, sub-servicers, and GSEs who manage distressed assets.

Cost-effective in the sense that instead of using a staff intensive, one-off property acquisition approach, our partners have access to automated, state of the art mapping and property management tools -- so communities can spend less time and energy thinking about spending taxpayer dollars and more on getting the most out of them.

Those may not be terms that have normally been associated with HUD in the past. But with new leadership, new tools and new partners, I'm committed to ensuring every community in America will in the years to come.

That's why, in light of the recent revelations around foreclosure processing, the Administration believes that there shouldn't be a blanket moratorium on foreclosures.

Let me be clear: any bank that hasn't followed the law should held accountable. The President has said--and I agree--that no one should lose their home due to a mistake. And where banks find errors, they should immediately stop what they are doing, review their processes, and fix any problems.

But as you know better than anyone, the best way to deal with foreclosures is to get these homes off the market and into the hands of responsible homeowners and others who can turn them quickly into affordable rental housing families need.

That's what you do everyday -- and we need to keep the pressure on.

New Foundation

Indeed, tools like NSP aren't just critical to our economic recovery -- they're essential to reimagining the future of our communities...and our economy.

We've seen how true that is right here in Cleveland, where despite an estimated 18,000 vacant properties, tools like NSP have helped local leaders like Mayor Jackson reduce the vacancy rate in one East Side neighborhood by nearly 40 percent in the last two years.

Having recently earned her Master's Degree in Urban Planning from Cleveland State University, Millie Davis had been living in a small apartment outside of town, paying exorbitant monthly utility bills where, as she put it, she "had to drive to do anything."

Millie had her eye on a home not far from here in the Detroit Shoreway neighborhood. The home had been long-vacant and fire-damaged, an eyesore on this block for more than three years -- but was being rehabilitated to green standards by the Cleveland Housing Network using NSP funds as part of a cross-sector partnership called Opportunity Homes.

Opportunity Homes not only rehabbed the home itself -- it provided Millie with the financial counseling and assistance she needed to purchase it last November, closer to where she worked.

Millie's story reminds us that the challenges our neighborhoods are facing don't stop at the end of the block or the city line -- that whether it's helping families live closer to work and school or attracting private investment to the region, to really help our communities become competitive, we need to help whole regions plan for their shared economic future.

That is the goal of the $100 million in regional planning grants I announced this morning -- the biggest federal planning investment in a generation, ensuring our country has more housing and transportation choices, more energy independence, and, above all, will be more economically competitive.

We know that planning for sustainable communities is an economic game changer.

Regions across the country understand the benefits of sustainable communities and, based on their own local resources, landscape, culture and ingenuity have been pursuing similar efforts for years.

That is why the Obama Administration launched a major sustainable housing and communities initiative, uniting the efforts of HUD, the Department of Transportation and the Environmental Protection Agency.

Our three agencies are working together to boost economic development to ensure that all Americans can afford to live in communities with access to employment, schools and public transit options.

When the Obama Administration announced the availability of local planning grants for sustainable communities, we were inundated with applications from every state and two territories.

That's why I'm excited to tell this audience that the Northeast Ohio Consortium, which includes not just the Cleveland area, but Youngstown, Akron and Canton, that applied for this funding is one of the 45 winners, providing the area with $4.25 million to plan for a sustainable economic future.

The plan submitted by this region not only builds on NSP and Recovery Act investments -- it also leverages another $2.3 million in additional resources. Indeed, the $100 million these grants are providing will leverage another $120 million from local, regional, state, and federal partners -- more than doubling the federal investment.

One of the reasons we chose the Northeast Ohio Consortium was that it brought in all four Metropolitan Planning Organizations, many of your fellow municipalities, the counties, public housing authorities, philanthropic, nonprofit, and academic allies.

Planning our communities smarter means parents will spend less time driving and more time with their children...more families will live in safe, stable communities near good schools and jobs...more kids will be healthy and fit.

Above all, more businesses will have access to the capital and talent they need to grow and prosper -- and the built-in competitive edge they need to attract jobs and private investment.

That's priority number one for this region -- it has been for more than a decade of planning and action projects in Northeast Ohio. And with this funding, we are going to help you turn those plans into action -- and a crisis into an opportunity.

A New Era of Partnership

And so, I hope it's clear that the Obama Administration is committed to helping your communities not only recover from this economic crisis -- but build a new foundation for growth and prosperity.

Some may wonder whether it's possible.

I believe it is -- because I believe my own eyes.

I mentioned the South Bronx earlier. More than three decades ago, I sat in Yankee Stadium during Game Two of a World Series game against the Los Angeles Dodgers when Howard Cosell broadcast his famous words to millions of viewers across the nation: "Ladies and gentleman, the Bronx is burning."

The South Bronx of the 1970s was nothing less than an urban catastrophe. Arson consumed thousands of buildings. Neighborhoods lost 75 percent of their populations in just 10 years.

Across New York, a sense of chaos bubbled close to the surface. Within weeks of the World Series, President Carter visited nearby Charlotte Street and compared the wreckage to Dresden after World War II.

Today it's hard to imagine that the now vibrant neighborhoods of the South Bronx were part of the warzone that Cosell described to the American people that October night more than three decades ago.

Why didn't it happen?

In part because new tools emerged.

In part, it was because new partners emerged.

But most important of all, it happened because local leaders acted to harness the power these tools had to create change.

As serious and longstanding as the challenges many of your communities face are, you also have one thing in its favor that the South Bronx didn't:

A federal partner -- that's ready to help and ready to help you make the tough decisions.

Having been a city housing official, believe me: I understand the frustrations of dealing with HUD in the past.

And of course, different communities face vastly different challenges and require very different tools.

But one thing that every community needs is a partner -- who can provide resources, but also the guidance necessary to use those resources in the best possible way, specific to the challenges they face.

That's what a partner is.

It's why I'm thrilled to be one to all of you here at HUD.

And it's why I'm confident that in the weeks, months and years to come, this state will emerge from this crisis -- we will recover. We will rebuild. And together, we will help America lead again.

Thank you.

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