PHOENIX (AP) -- Francisco and Pam Cruz maneuvered around boxes of new flooring and open cans of paint as they surveyed the foreclosed Phoenix house they would soon call their own.

This house wasn't typical of the thousands in foreclosure-battered Arizona that banks have auctioned for cheap -- often to investors who make just enough repairs to satisfy a

potential renter.

The Cruzes will become first-time homeowners, helped by one of many nonprofit groups that can snag foreclosures at a discount -- and sometimes for free -- before banks make them available to speculators.

It's a glimmer of hope for struggling neighborhoods that are watching banks foreclose on a record number of homes this year.

In the Cruzes' case, Rebuilding Together obtained the home for free from JPMorgan Chase & Co., the bank that foreclosed on its previous owner. Honeywell International Inc. provided the labor to renovate it and $25,000 cash for the materials.

In a market hot with speculators snapping up cheap foreclosures, Rebuilding Together's program is one of many that give a leg up to nonprofits and redevelopment agencies trying to stabilize neighborhoods dotted with vacant houses.

Yet Jim O'Donnell, JPMorgan Chase & Co.'s community revitalization program manager, acknowledges that each home being offered to a community group also has a story about someone who lost it to the bank.

``It's an unfortunate situation, and that's why we really take a conscious effort to work with our partners to ensure that we can have some good stories at the end of this unfortunate equation,'' O'Donnell said. ``Through these programs, we put what I call this protective umbrella over these affordable homes so that first-come first-served nonprofits can get access to them to ensure they get turned back into the hands of the community.''

Cruz and his wife watched earlier this month as more than 70 red-shirted Honeywell Aerospace employees swarmed throughout the three-bedroom house, putting the final touches on new kitchen cabinets, painting baseboards and walls, and cleaning up the landscaping.

``All the neighbors, they're just so grateful, because the house was looking so bad,'' Pam Cruz said. ``This is a good example of the banks working with the mortgage companies and so forth, helping the community revitalize the neighborhood.''

The disabled Vietnam veteran and his wife bought the house after the renovation was complete and got a completely updated home for below market value. The mortgage payment will be much less than the $900 a month they were paying in rent.

Under an expanded agreement announced in September between the federal government and banks that provide about 75 percent of all U.S. mortgages, as many as 100,000 more repossessed homes will join those already being pumped into the nonprofit and redevelopment agency pipeline.

That deal started in 2008 as a pilot program to provide foreclosed homes to cities and nonprofits that could renovate them for low- and moderate-income families. About $7 billion in federal funds has been allocated to the program.

But the discount program will only handle a small percentage of the foreclosures expected in the coming years. Banks seized more than 980,000 homes nationwide through the first 11 months of 2010 and will likely take back a million more next year, according to foreclosure listing firm RealtyTrac Inc.

The home the Cruzes now own is one of 1,200 Chase has donated or sold at steep discounts to nonprofits or community development agencies in the past two years. There are similar programs at other major lenders, including Wells Fargo & Co., which will donate close to 200 homes this year and sell hundreds more at a discount.

The Cruzes said they had been contemplating buying a house for months before a friend who is a real estate agent recommended the couple to Rebuilding Together's Phoenix chapter. As first-time homebuyers, the retired couple were the type of people the group is looking to help.

The nonprofits generally have experience rehabbing homes, and their efforts help pull up home values. Groups like Habitat for Humanity, Rebuilding Together and community development organizations like Detroit Shoreway in Cleveland and Jacob's Ladder in Memphis participate.

The availability of foreclosure homes has helped community-based housing groups like Community HousingWorks in San Diego expand from developing affordable apartment housing to helping buyers get into their first homes.

The 30-year-old group started a nonprofit brokerage in 2008 and soon discovered that buyers were not able to buy homes because of competition from investors.

``The first 15 days on the job back in '08, I made 50 offers and had none of them accepted'' because investors snapped them up, said Jorge Luis Vega, who runs the group's nonprofit brokerage.

Another group that specialized in rehabilitating homes told Community HousingWorks of banks' ``first-look'' programs, and Vega's group signed on quickly.

``Buyers in this market that we serve aren't objecting to price, they're just not being given access to inventory,'' Vega said. ``And I think that these first-look programs are really allowing a lot of folks that want to be in these more diverse communities.''

This year, Community HousingWorks acquired 18 homes, rehabbed them and handed the keys to buyers. Next year, they hope to do close to 100.

In Cleveland, the Detroit Shoreway neighborhood organization has acquired 72 one- or two-family properties in the past two years and is actively leaning on banks to help it obtain more distressed properties.

``The thing we try to get banks to realize is if you sell a property, just fire-sale it to a slum investor, you may hold the mortgage on the property next door,'' said Matt Lasko, the group's housing director. When that owner gets sick of the property next to them, Lasko said, ``then guess what, now you have another mortgage in default.''

Dennis Flynn, executive director of Rebuilding Together in the Phoenix area, said his group has historically focused on fixing up homes for the elderly, disabled and poor. Only recently has Flynn started thinking about actually acquiring properties and putting deserving homeowners in them.

``We'd like to make this a veteran's program,'' he said as he scrolled through a list of more available first-look houses on his smart phone.

For Francisco Cruz, who suffers from diabetes and other ailments he traces to his service as a Green Beret on multiple tours of Vietnam in the 1960s, watching the final touches being put on his home was emotional.

``We were overwhelmed with all these people coming to help us,'' said Cruz, who is known as ``Chico.'' ``Because you know well that labor is the highest thing whenever it comes to remodeling a home. The labor really gets you.''