Block after block, abandoned bungalows and empty frame houses line areas of downtrodden South Chicago. Some show signs of previous home improvements (new roofs, freshly painted siding), but most are boarded up and likely stripped bare of interior appliances, flooring, wiring and plumbing.

They are a bane to neighborhoods and cities, as well as the real-estate owned portfolios of the banks and servicers stuck with these discarded, and mostly unmarketable, homes. "I can take you through parts of Chicago where REOs are for sale for $20,000, and you can't get a nibble," said Rob Grossinger, a Chicago-area community affairs executive with Bank of America.

Breathing life into these blighted areas is what Congress had in mind when it passed the Housing and Economic Recovery Act in 2008. By giving cities and counties $4 billion to buy up unwanted foreclosed housing through community block grants (an additional $2 billion was awarded in January), local officials could deputize nonprofits and investors to rehabilitate discarded homes and promote stabilization efforts in low-to-moderate income neighborhoods.

What's just ramping up now is a mechanism for cities to directly buy these homes out of banks' REO portfolios.

A trust organized by national nonprofit housing organizations has been created to act as a middleman between cities looking to acquire abandoned properties and the lenders looking to unload them and rid themselves of property tax and maintenance costs.

The National Community Stabilization Trust, which grew out of a pilot program that ran in several cities, has established ties in 120 markets to give cities a first look, and a 10- to 15-percent market discount on REOs.

For up to two weeks before a bank puts a property on the market, cities, through the NCST, have an exclusive period to purchase houses located in community development zones designated for federal funding.

"We have working relationships with all the big players-Bank of America, Wells Fargo, Chase, Citi, Fannie, Freddie, GMAC and others," says Craig Nickerson, president of the NCST, a D.C.-based organization backed by the National Urban League, the Housing Partnership Network, and three other housing groups. "In effect, we've become a facilitator, a clearinghouse."

Mary "Muffie" Gabler, senior vice president, and community development manager at Wells Fargo, says the NCST can play a crucial role in helping large servicers deal with a flood of requests from city housing agencies. "We knew once the money started flowing from the government, we would be getting hundreds of calls" that could overwhelm Wells' servicers, says Gabler.

Through the end of February, the NCST sent information on 12,000 bank-owned properties to cities and their public agency contacts, leading to 1,400 property purchases. Banks have absorbed more than 1.8 million REOs the past two years, according to RealtyTrac, but it's unclear how many would be eligible for the NCST program.

The homes must already be in zones designated for the federal funds, which are administered by the Department of Housing and Urban Development. Both sides still have to negotiate, too: the bank may find a better deal from a private investor, and the discount price may still prove too expensive to cities with green building and energy-efficiency standards enforced on rehabs.

The most active city through the NCST program is Minneapolis, which has purchased 300 homes in north and south central sections of the city. The Jordan and Hawthorne neighborhoods in the city's north section have been particularly decimated by the foreclosure crisis, says Tom Streitz, Minneapolis' director of community planning and economic development. "I think through the trust, we're reaching 70 percent of the foreclosure market," in the city, Streitz says.

The remainder are foreclosures outside the zones, or owned by local and regional institutions not part of NCST's program. Nickerson said the trust is working on getting more local banks and servicers on board.

That would be helpful to cities like Las Vegas, an NCST participant. "There are [servicers here] I've never even heard of before, and we haven't had access to [Federal Housing Administration] properties, realistically," says Mike Pawlak, manager of community resources for Clark County in Nevada.

The NCST is also looking to start moving banks' "shadow inventory"-homes that are headed toward foreclosure. "That's really the future," says Nickerson.

The number of loans 90 days past due is rising fast. According to Foresight Analytics in Oakland, Calif., delinquency rates have risen above 10 percent in nine metro areas, including Minneapolis-St. Paul and El Paso.

While BofA's Grossinger is intrigued by a program that would move preforeclosures off the books, he thinks it's going to first take changes in laws that could speed up the title takeover process on abandoned homes.

"The single biggest issue we have with vacant, preforeclosed properties is we can't get title to them because it takes forever to foreclose on them," says Grossinger.

The shorter that wait, the quicker homes in blighted neighborhoods can be transformed into what Nickerson calls "billboards of hope."

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