Officer Next Door Program

U.S. Department of Housing and Urban Development

Government memorandum

By: U.S. Department of Housing and Urban Development

Date: 2004

Source: U.S. Department of Housing and Urban Development. "Officer Next Door." <http://www.hud.gov/offices/hsg/sfh/reo/goodn/ond.cfm> (accessed May 27, 2006).

About the Author: The U.S. Department of Housing and Urban Development (HUD) is a government agency charged with increasing home ownership, promoting affordable housing, improving communities, and ensuring equal access to housing.

INTRODUCTION

The federal government first became involved in housing problems in the late nineteenth century by funding the first formal investigations of inner city slum housing. The scope of government housing efforts broadened considerably in the 1930s with the establishment of the Reconstruction Finance Corporation (RFC), whose purpose was to make loans to private corporations building low-income housing. The RFC would become the first of many government-backed corporations established to expand housing options for Americans.

During the 1930s, difficulties in securing private mortgages created significant barriers to individual home ownership. Banks frequently charged high interest rates and offered loan terms of five years or less, making home ownership unaffordable for most Americans. In response, Congress established the Federal Housing Administration (FHA), which provided mortgage insurance, thereby reducing risk to banks and encouraging them to offer longer-term mortgages. The FHA remains the primary government agency providing mortgage insurance today.

Numerous other agencies sprang up to assist the FHA in its efforts, including the Farmers Home Administration (FmHA), the Federal National Mortgage Association (Fannie Mae), and the National Housing Agency (NHA), which oversaw all non-rural housing efforts. In 1943, the NHA was replaced by the Housing and Home Finance Agency (HHFA). Government efforts through the 1950s and 60s centered on efforts to improve housing quality and to reduce housing discrimination. In 1965, the HHFA was superseded by the new Department of Housing and Urban Development, commonly known as HUD.

Among its first tasks, the new agency was charged with enforcing the recently passed Fair Housing Act. This act, part of the comprehensive Civil Rights Act of 1968, guaranteed equal access to housing regardless of an individual's race, gender, or religion. At the time of the act's passage, housing discrimination was rampant, and minorities frequently found themselves locked out of better apartments and nicer neighborhoods. The Housing Act of 1968 also established the Government National Mortgage Association (Ginnie Mae) to improve middle class access to affordable mortgages.

During the 1970s, HUD promoted laws requiring lenders to reveal their lending practices in order to reduce redlining and other discriminatory lending practices. During that same era, HUD provided monthly rent subsidies to almost one million low-income tenants under the Section Eight program.

By the early 1980s, the long-term costs of Section Eight began to spiral upward, and new project development under this program was halted in order to focus resources on other initiatives. In the 1990s, HUD faced a variety of fiscal and political crises, and found itself in a period of extended reassessment. Ironically, part of HUD's financial crisis stemmed directly from the costs associated with FHA loans, which typically carried higher interest rates than conventional bank loans.

HUD is probably best-known for its efforts to increase home ownership by helping lower income residents qualify for mortgages. But much of HUD's energy is devoted to improving existing neighborhoods, particularly in urban areas. Although houses and apartments form the visible structure of a neighborhood, residents make the decisions which raise or lower standards of living. With this principle in mind, HUD has begun offering incentives to a select group of citizens to entice them back to troubled neighborhoods.

PRIMARY SOURCE

The U.S. Department of Housing and Urban Development (HUD) wants to make American communities stronger and to build a safer nation. Public safety improves when police officers live in a neighborhood. The Officer Next Door (OND) program helps make this goal a reality by encouraging these valuable professional public servants to become homeowners in revitalization areas.

Who Can Participate?

You must be a full-time, sworn law enforcement officer who is "employed full-time by a Federal, state, county or municipal government; or a public or private college or university." You must be "sworn to uphold, and make arrests for violations of, Federal, state, county, or municipal law." Your employer must certify that you are a full-time police officer with the general power of arrest. You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your OND home. You must agree to live in the HUD home as your only residence for three years after you move into it.

How do I participate?

OND property is listed and sold exclusively over the Internet. Properties are single family homes located in Revitalization Areas. Properties available through the program are marked with a special Officer Next Door button. Bids are awarded once each week. Your bid must be the amount of the list price. You may submit your bid directly or utilize the services of a real estate broker. Winning bids are randomly selected by computer. The winning bid is posted each week on the website where you made your bid.

You may also buy a home from a government agency or a nonprofit organization that bought the home from HUD. When an agency or nonprofit buys the house, HUD expects the full discount to be passed on to you.

In all cases, HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this "silent second" provided that you fulfill the three-year occupancy requirement.

What Are the Benefits for the Officer?

The selected bidder may purchase the property at a fifty percent discount from the list price. For example, if a HUD home is listed for $100,000, an officer can buy it for $50,000. To make a HUD home even more affordable, you may apply for an FHA-insured mortgage with a down payment of only $100 and you may finance all closing costs.

If the home you want to purchase needs repairs, you may use FHA's 203(k) mortgage program. This program allows you to finance both the purchase of the home and the cost of needed repairs. You have the benefit of one loan for both costs and one monthly payment.

Discuss these financing options with your lender.

SIGNIFICANCE

While last season's clothing and day-old bread are frequently discounted by 50 percent or more, houses are rarely so drastically reduced. HUD's willingness to sell homes to police officers for half their market value is startling, but HUD benefits in several ways. First, HUD is able to sell some of the hundreds of thousands of properties it has repossessed when buyers defaulted on their loans. Second, by enticing law enforcement officers into a rebuilding neighborhood, HUD can anticipate that safety will improve, pulling property values up for other owners as well. Finally, by selling to police officers who agree to stay for a minimum of three years, HUD has extended credit to members of a reputable profession, raising the odds of loan repayment. HUD is undoubtedly betting that other potential buyers will also be reassured by the sight of a police cruiser sitting in a neighbor's driveway.

HUD is not limiting its efforts to police officers. Similar programs are available for professional fire-fighters, emergency medical technicians, and school teachers. In each case, HUD offers buyers a down-payment of only $100 along with a price reduction of 50 percent, provided the buyer lives in the house for at least three years.

FURTHER RESOURCES

Books

Hays, R. Allen. The Federal Government and Urban Housing: Ideology and Change in Public Policy. Albany, N.Y.: State University of New York Press, 1995.

Hilfiker, David. Urban Injustice: How Ghettos Happen. New York: Seven Stories Press, 2003.

Lewis, Sally. Front to Back: A Design Agenda for Urban Housing. Burlington, Mass.: Architectural Press, 2005.

Periodicals

Aronauer, Rebecca. "HUD Programs' Loss Hurts Colleges." Chronicle of Higher Education. 52(2005):A25.

Chan, Sewell. "Proposed Cut for HUD Is Criticized by Bloomberg." New York Times. 155(2006): B3.

Ives-Halperin, Benton. "Subprime Borrowers Could Gain With HUD Plan." Wall Street Journal. 47(2006): D5.

Web sites

Habitat for Humanity. "HUD awards $10.7 million to Habit for Humanity." February 23, 2006 <http://www.habitat. org/newsroom/2006archive/02_23_2006_HUD_awards_10.7_million_to_Habitat_for_Humanity.aspx> (accessed May 27, 2006).

Urban Issues Program, University of Texas at Austin. "How HUD's HOPE VI Program Is Destroying a Historic Houston Neighborhood." <http://www.utexas.edu/academic/uip/research/docstuds/coll/mcghee.html> (accessed May 27, 2006).

U.S. Department of Housing and Urban Development. "Good Neighbor Next Door Loan Servicing." March 7, 2006 <http://www.hud.gov/offices/hsg/sfh/nsc/gnndserv.cfm> (accessed May 27, 2006).