Hawai'i homes lost to foreclosure may soon become government-owned affordable housing under a new federally financed plan that allows state and county governments to buy foreclosures.

The U.S. Department of Housing and Urban Development has allocated $19.6 million to Hawai'i as part of a program providing $3.92 billion to help states combat problems stemming from rising foreclosures such as neighborhood blight and falling home values.

It's questionable how big an impact the program will have in the Islands because $19.6 million may not buy much property in a market where most homes cost more than $500,000. But the fund adds a new tool to help local government officials address one of the state's longer-standing problems — the lack of affordable housing.

"We realize that it's not a panacea, but the funds are a tremendous boost," said Kent Miyasaki, housing information officer for the Hawai'i Housing Finance and Development Corp., the state agency that's administering the program locally.

The Neighborhood Stabilization Program was launched about three weeks ago by HUD as one part of the Housing and Economic Recovery Act of 2008 passed by Congress and signed into law by President Bush in July.

Hawai'i's share of program money is small because foreclosures in the state haven't multiplied as dramatically as in other parts of the country.

In some Mainland states, more than $500 million is being directed to local governments, some of which are already spending local tax revenue to buy foreclosures. In some cities hardest hit by foreclosures, government-purchased homes are being torn down to combat blight where high concentrations of vacant, unmaintained homes attract illicit activity.

In Hawai'i, Hawai'i Housing Finance and Development Corp. has asked county officials to submit proposals to spend the state's share of the program funds.

Areas with higher proportions of foreclosed homes, lower-income residents or more subprime mortgages will receive a priority for the spending, which must be used to buy foreclosed property below market value.

Acquired homes could be converted into rental housing, resold to low- to moderate-income buyers or redeveloped. The program also allows local governments to demolish homes and land-bank property where neighborhoods are plagued by vacant homes.

Reuse of the foreclosed homes must benefit individuals earning no more than 120 percent of the annual median income, which for Hawai'i equates to $88,560 for a family of four. A quarter of the spending must benefit individuals earning no more than half the median income, or $36,900.

Housing Finance has given counties until today to submit final proposals, and will allow the public to comment on the county plans between Oct. 30 and Nov. 13 after the proposals are made available for review. If Housing Finance rejects county plans, the agency could submit its own spending plan to HUD.

If HUD approves the state's spending plan, money is expected to be made available early next year and would have to be spent within four years.

"(The program) is on a fast track and we're working with HUD and the counties on how to best use the money to have a meaningful impact," Miyasaki said.

HAWAI'I GETS MINIMUM

The distribution of money by state was based mostly on home foreclosure levels, though other factors included mortgage defaults and subprime loans. Each state received at least $19.6 million, or 0.5 percent of $3.92 billion.

Hawai'i, like 18 other states, received the minimum appropriation because its level of foreclosures, defaults and subprime loans are relatively low compared with other states.

According to HUD, foreclosure proceedings were begun on 6,152 homes in Hawai'i over the past 18 months, or 342 per month on average. That was 2.3 percent of all mortgages, or eighth lowest among states and less than half the national average of 4.8 percent.

The Islands also had 28,498 subprime loans, representing 10.9 percent of all mortgages. That was tied for 28th lowest with Utah, and just under the national average of 11.8 percent.

There were 2,258 Hawai'i mortgages in default, or 0.9 percent. That was ninth lowest and nearly half the national rate of 1.7 percent.

The five states receiving the most money under the program are Florida at $541 million, California at $530 million, Michigan at $264 million, Ohio at $258 million and Texas at $178 million.

HUD based its calculations on the quarterly Mortgage Bankers Association National Delinquency Survey, and adjusted the data using housing inventory statistics from the latest annual Census update because the Mortgage Bankers Association survey only reflects around 70 percent of all active mortgages.