Cities hoping to tap into the Neighborhood Stabilization Program are being stymied by investors who pay cash for distressed housing units and rent them out - a trend that worries those who believe homeownership is key to stronger communities and higher property values.

In response, HUD will broaden the pool of foreclosures that municipalities can purchase to help them buy and resell homes at affordable rates.

Banks, meanwhile, are issuing new guidelines to real estate practitioners, requiring them to give priority to local governments using federal funds to acquire bank-owned residences.