State Neighborhood Stabilization Program (NSP)

The Neighborhood Stabilization Program is a program through the State of Wisconsin Department of Administration that provided assistance to Wisconsin communities to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The City of Kenosha received funds under NSP1.

NSP1 was authorized under Title III of the Housing and Economic Recovery Act of 2008. HUD is treated Neighborhood Stabilization Program funds as a special allocation of Fiscal Year (FY) 2008 CDBG funding. Neighborhood Stabilization funds could be used to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of property values of neighboring homes.

The City of Kenosha utilized its NSP funds to acquire 8 properties. Two existing homes were rehabilitated with the funds and six new homes were constructed on the other properties. Two homes are still available for income-eligible applicants.

NSP Home Purchase Assistance

The City of Kenosha is able to assist applicants who are buying a home constructed by the City of Kenosha and who have a financing gap. The City can offer a deferred second mortgage, up to the amount of the financing gap or 40% of the purchase price, whichever is lower. NSP second mortgage purchase loans for eligible homebuyers will be written as deferred payment loans at 0% interest for the first fifteen (15) years, then monthly payments will be required for the next fifteen (15) years at an interest rate of 3% annually.

In all cases, the second mortgage will be based on the financing gap, less the amount of the first mortgage and required down payment. As part of its underwriting review, the City will evaluate debt-to-income (dti) ratio for all applicants. Generally, the front end dti should not be any greater than 30%, including the first mortgage principal and interest, taxes and insurance, and the back-end dti should be less than 45%. Where the front-end dti is greater than 30% or the back-end dti is greater than 45%, the City may provide a second mortgage for a larger amount than the financing gap to reduce the front-end dti to 30% or less, or to reduce the back-end dti to 45% or less.

Citizenship

Applicants to purchase properties for sale through the City of Kenosha's NSP Program must be US citizens or have “Qualified Alien” status under Section 431 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

Income

Eligibility for buyers through the NSP Program is based on annual household income. Total annual household income cannot exceed 50% (120% for some homes) of the County’s median income per family size as determined by HUD. In accordance with the NSP Rules, the City is required to use the Part 5 annual income (Section 8) method to determine the household's annual income. All homebuyers must sign IRS Form 4506 “Request for Copy of Tax Form” and the City will request a copy of the applicant's federal tax return transcript from the IRS. For IRS tax returns older that six months, the City will require an updated income verification, including third party verification of employment and recent earnings statements.

Ability to Obtain Mortgage Financing

Potential homebuyers must have the ability to obtain a Fixed Rate mortgage loan from a private lender for a minimum of 57% of the purchase price of the property offered for sale. The minimum financing is based on a 3% down payment. Where the homebuyer provides a larger down payment, the minimum financing obtained through a private lender or the City may be reduced.

Down Payment Requirement and Down Payment Assistance

All homebuyers are required to provide a 3% down payment at closing. The down payment may be from the buyer’s personal savings or from a Down Payment Assistance Grant provided through the Federal Home Loan Bank, City of Kenosha, or other source of down payment assistance.

The City may provide a Down Payment Assistance Grant to eligible homebuyers through NSP funds. The Down Payment Assistance Grant will require the homebuyer to pay a minimum of 25% of the required downpayment amount, or $1,000, whichever is greater. The Homeowner will be required to live in home for minimum of five years, or the grant amount will be required to be paid back in full, less a 20% reduction for every year the homeowner resides in the home.

Down Payment Assistance for VA Loan Borrowers

The City may provide a Down Payment Assistance Grant of up to $5,000 for eligible Veterans Administration Loan borrowers. Down Payment Assistance Grants will be a lien filed on the property and will be forgiven provided the homeowner resides at the property for a period of 5 years after purchasing the property. Where the homeowner lives in the home less than 5 years, the grant amount will be required to be paid back in full, less a 20% reduction for every year the homeowner resides in the home.

Primary Residence and Owner Occupied Single Family Deed Restriction

NSP assisted property must be occupied as the homebuyer’s primary residence. The City will place a Deed Restriction on the property at the time of property transfer: "This property is a single family dwelling and will always remain a single family dwelling and owner occupied for as long as it remains on the land." The homebuyer cannot own any other residential property at time of closing.

Homebuyer Counseling Requirement

All homebuyers receiving assistance through NSP must participate in homebuyer training offered through the Kenosha Housing Authority and provide the City with certification they have successfully completed such training.

Closing Cost Assistance

The City may provide a Closing Cost Assistance Grant, up to 3% of the purchase price, to eligible homebuyers through NSP funds. The Homeowner will be required to live in home for minimum of five years, or the grant amount will be required to be paid back in full, less a 20% reduction for every year the homeowner resides in the home.  

Recapture and Resale Provisions

HUD requires either a Recapture or Resale Lien recorded to protect the assistance provided to the homebuyer. In most cases, the Recapture Lien will be recorded.

Recapture Option

This option will be used by the City to recapture the NSP funded second mortgage purchase assistance loans provided to the homebuyers if the NSP recipient decides to sell the house within the required affordability period. The homeowner is able to sell the property at whatever price the market will bear.

Affordability periods for home ownership assistance through NSP

NSP Funds Provided (Per Unit) *	Affordability Period
Less than $15,000	5 Years
$15,000 to $40,000	10 Years
Greater than $40,000	15 Years

*Per unit NSP assistance for home ownership is based on the amount of the NSP mortgage purchase assistance provided to the homebuyer. For example, if the City's NSP funded second mortgage to the buyer is $25,000, the affordability period on the home is 10 years. Therefore, the City will provide second mortgage purchase loans with monthly payments deferred for 10 years at 0% interest. After the initial 10 years, the loan converts to a 3% monthly installment loan at 3% interest for a 20-year term.

Resale Option

The resale option will only be used by the City in those cases where the homebuyer declines to accept a NSP funded second mortgage to purchase a NSP property. This option ensures that the NSP-assisted unit remains affordable over the entire affordability term. Resale requirements under the “resale option” include the following:

1. The new purchaser must meet NSP income eligibility requirements (annual adjusted income below 50% or 120% of Kenosha County median income for family size).
2. The new purchaser must occupy the property as their principal place of residence.
3. The sales price must be affordable to the new buyer.
4. Affordability is defined as: Monthly payment for principal, interest, taxes and insurance (PITI) cannot exceed 40% of the purchasers gross annual income.
5. The seller is entitled to a “fair return” on their investment upon sale of the property. “Fair Return” on investment for purposes of NSP includes the homeowner’s initial investment (first mortgage, down payment and closing costs) and any documented capital improvements to the property completed after the initial sale.

Enforcement of the Recapture or Resale Options

The City will use the following legal instruments to meet and enforce the requirements of the recapture or resale restrictions:

NSP Requirement	Recapture Option	Resale Option
Principal Residence	Deed Restriction & NSP Lien	Deed Restriction & NSP Lien
Affordability Period	Promissory Note & NSP Lien	Deed Restriction & NSP Lien
Repayment of HOME Subsidy	Promissory Note & NSP Lien	Deed Restriction & NSP Lien
Fair Return to Owner	N/A	Deed Restriction & NSP Lien
Affordable Resale Price	N/A	Deed Restriction & NSP Lien
Subsequent Buyer’s Income	N/A	Deed Restriction & NSP Lien
* NSP Lien is a separate document recorded with the NSP Mortgage securing repayment of the NSP subsidy.