Karen Hess grew anxious when the tenants moved out of the rowhouse two doors down from her family's home more than a year ago.

The brick and stone house was the only vacant one on the 3300 block of Wellington Street in the Mayfair section of Northeast Philadelphia.

Worried that the empty house would turn into an eyesore and bring down everyone's property values, neighbors took responsibility for raking leaves in front of the house or shoveling snow.

"It's scary," Hess said, "especially when everyone works very hard to keep up their houses."

But in the last four months, the 80-year-old rowhouse has changed from the worst on the block to one of the best, thanks to a new federally funded program to stabilize neighborhoods following the foreclosure storm.

The Bush administration started the Neighborhood Stabilization Program in 2008, and Congress has added more funding as part of President Obama's stimulus plan.

Philadelphia has received $20 million under the program and is using the money to shore up otherwise stable neighborhoods, where foreclosures threaten to devalue properties.

The Philadelphia Redevelopment Authority (RDA), which administers the program, is using the funds to buy and renovate foreclosed properties. Developers are paid $20,000 per house once a property is sold. Buyers must earn less than 120 percent of the region's median income - $65,400 for a single person, or $93,360 for families.

Terry Gillen, executive director of the RDA, said the agency was targeting the loans for areas where a foreclosed house might be the only vacant property on a block.

The goal is to stop blight from starting and to put properties back into homeowners' hands, she said.

Yesterday, Mayor Nutter stood in the living room of the Wellington Street house - the first to be revitalized with stabilization funds - and declared the fledgling program "a winner."

"This is a proactive program that truly understands how neighborhoods work," Nutter said. "We want to stem blight before it takes over."

Nutter said the city "cannot send the wrong message to neighborhoods, that unless you completely fall apart, only then will we send in the cavalry to save your community."

"Every deteriorated neighborhood started with one vacant house," Nutter said. "One gets two, two gets four, and four ends up with eight. It's a cancer that spread rapidly, and you have to stop that first one. That's what this strategy is all about."

As the mayor spoke to redevelopment and community officials, curious neighborhood children peered into the living room.

Hess, the neighbor two doors down, called the transformation of the house "awesome."

Gillen said the RDA had 28 houses under contract with developers, including private and nonprofit firms. Now that the framework is in place, she said, the authority should be able to pick up the pace, handling a dozen homes a month.

Under federal guidelines, the RDA must commit all of its stabilization money by late 2010.

HUD gave cities leeway in deciding how to use the funds for dealing with foreclosures. Some of the hardest-hit cities, like Detroit, are using the funds to demolish properties.

Jeff Allegretti, whose firm, Innova Services Co., is renovating eight foreclosed properties, said the program was unprecedented because the money was going to relatively stable communities such as Mayfair, Tacony, Overbrook, and Wynnefield.

"We're working in neighborhoods where traditionally they have not had federal housing programs," Allegretti said.

The RDA lent Innova $241,000 to cover the costs of buying and renovating the house at 3333 Wellington, work that included a new roof, a rebuilt deck, a new kitchen, heating system, and bathroom, and refinished floors.

Innova has found a buyer, who was not identified but who plans to move in next month.

Money from the sale will return to the stabilization fund, but the RDA is subsidizing about $80,000 in the cost of the basement-to-roof upgrade, Allegretti said.

The RDA said Philadelphia has had 7,212 foreclosures so far this year - about the same as last year's 7,187, but up from 5,892 in 2007.

David Feldman, a Merion-based developer of affordable housing who has three homes under contract with the RDA, said one of the goals of the program was to put properties back into the hands of homeowners and not speculators.

"We need this to keep neighborhoods stable," Feldman said.

Contact staff writer Jennifer Lin at 215-854-5659 or jlin@phillynews.com.