Only the Rich People Get To Rebuild
Not that this should surprise anyone...
The Small Business Administration, which runs the federal government's main disaster recovery program for both businesses and homeowners, has processed only a third of the 276,000 home loan applications it has received.
And it has rejected 82 percent of those it has reviewed, a higher percentage than in most previous disasters, saying that many would-be borrowers did not have incomes high enough, or credit ratings good enough, to qualify. The rejections came even though the Federal Emergency Management Agency has referred more than two million people, many of them with low incomes, to the S.B.A. to get the loans.
To a large degree, that high rejection rate appears to reflect a mismatch between existing government aid programs and the large number of low-income people affected by this year's hurricanes. Despite the widespread poverty in the most damaged regions, the Small Business Administration has not adjusted its creditworthiness standards, which are roughly comparable to a bank's.
The Small Business Administration, which runs the federal government's main disaster recovery program for both businesses and homeowners, has processed only a third of the 276,000 home loan applications it has received.
And it has rejected 82 percent of those it has reviewed, a higher percentage than in most previous disasters, saying that many would-be borrowers did not have incomes high enough, or credit ratings good enough, to qualify. The rejections came even though the Federal Emergency Management Agency has referred more than two million people, many of them with low incomes, to the S.B.A. to get the loans.
To a large degree, that high rejection rate appears to reflect a mismatch between existing government aid programs and the large number of low-income people affected by this year's hurricanes. Despite the widespread poverty in the most damaged regions, the Small Business Administration has not adjusted its creditworthiness standards, which are roughly comparable to a bank's.
Tags: Katrina
posted by Management at 10:10 PM
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Loans to Homeowners Along Gulf Coast Lag
By LESLIE EATON and RON NIXON
Hundreds of thousands of Gulf Coast families, hoping to rebuild their homes after the hurricanes using low-interest government loans, are facing high rejection rates and widespread delays at the federal agency that administers the disaster loan program.
The Small Business Administration, which runs the federal government's main disaster recovery program for both businesses and homeowners, has processed only a third of the 276,000 home loan applications it has received.
And it has rejected 82 percent of those it has reviewed, a higher percentage than in most previous disasters, saying that many would-be borrowers did not have incomes high enough, or credit ratings good enough, to qualify. The rejections came even though the Federal Emergency Management Agency has referred more than two million people, many of them with low incomes, to the S.B.A. to get the loans.
To a large degree, that high rejection rate appears to reflect a mismatch between existing government aid programs and the large number of low-income people affected by this year's hurricanes. Despite the widespread poverty in the most damaged regions, the Small Business Administration has not adjusted its creditworthiness standards, which are roughly comparable to a bank's.
In fact, the loans that have been approved appear to be flowing to wealthy neighborhoods in New Orleans but not to poor ones, according to a list of loans released by the government and mapped by The New York Times.
Under the disaster loan program, homeowners can borrow up to $200,000 at low interest rates to repair houses. Owners and renters can borrow up to $40,000 to replace damaged furnishings.
As of Tuesday, the agency had approved 17,463 home loans, for almost $1.2 billion, although only $62 million had been disbursed to homeowners, who must be ready to start repairs to get the money. More than 77,000 applications have been rejected.
The high rejection rate and the slow processing of applications are causing concern among government officials, academic experts and homeowners. Many say the problem undermines government pledges of aid, embodied by President Bush's promise in September to "do what it takes" to help citizens rebuild.
One such homeowner is Albertha Hastens, 55, a member of the school board in White Castle, La., which is between New Orleans and Baton Rouge. Strong winds damaged the roof and tore siding off her house, Ms. Hastens said, but the Small Business Administration turned her down for a loan, citing her low income. (She receives a small stipend from the school board along with her Social Security payments.)
"It makes you tired and disgusted," Ms. Hastens said of her experience with the agency. "For poor working people, you don't know what to do."
Agency officials say they are doing their best under difficult circumstances, noting that they recently approved $44 million in home and business loans in a single day.
They lay the blame for any problems on the huge size of the disaster and the small size of the agency, which has hired thousands of temporary workers to help process hurricane-related requests.
"We don't have tens of thousands of people waiting for a disaster," said Hector V. Barreto, the agency administrator. "We had 800 people. Now we have 4,200 people working, most brand new."
As for the rejection rate, agency officials say the Small Business Administration's loan program could not risk taxpayer money by lending it to people with low incomes or poor credit. "We're just dealing with the demographics in the area," said Herbert L. Mitchell, the associate administrator who runs the agency's disaster assistance program.
Both agency officials and some critics of the federal government say that many applicants do not really want loans, but must go through the agency's loan process - and be rejected - in order to be eligible for certain grants from the Federal Emergency Management Agency. (FEMA does not dispute this but says it cannot give these grants to people who have enough money to take out loans. It gives other grants for home repair in certain circumstances, but only for up to $15,600.)
The slow pace of the agency's response to the hurricanes is a reason Representative Nydia M. Velázquez of New York, who is the senior Democrat on the House Small Business Committee, called on Mr. Barreto yesterday to resign.
"We have reached a point where we need to get someone who can run the office in an effective way," Ms. Velázquez said. "He doesn't have what it takes at a moment of crisis."
In addition to the problems with the homeowners program, Ms. Velázquez cited the even slower pace of loans to businesses in the Gulf Coast States. The Small Business Administration has also allowed large corporations to get $2 billion in federal contracts under the guise of being small businesses, she said, and morale at the agency is low.
Responding to the criticism, Raul E. Cisneros, the agency's director of communications, said in a statement: "Unfortunately, the current political environment in Washington, D.C., is not lacking for individuals who are anxious to throw stones. This administration is focused on helping the people of the Gulf Coast rebuild after these devastating hurricanes."
Mr. Cisneros said the agency had passed the billion-dollar loan approval mark five weeks faster than after the hurricanes in Florida last year.
But Republicans have also been critical of the agency's response. Senator Olympia J. Snowe, the Maine Republican who is chairwoman of the Committee on Small Business and Entrepreneurship, has sharply questioned agency officials at two hearings.
Ms. Snowe also sent members of her staff to investigate the situation at the agency's loan-processing office in Fort Worth, where they found that workers have been putting in long hours but have been hampered by management missteps and a new - and, by some accounts, balky - computer system.
To get Small Business Administration loans, homeowners must submit applications and give the agency access to tax returns so loan officers can see if applicants have enough income available to cover the debt.
The agency also sends out inspectors to check the damaged homes, and makes sure that the loans are not used for costs already covered by insurance. The agency checks applicants' credit histories and, for loans over $10,000, also requires collateral, just as home mortgage lenders would.
For borrowers who could not borrow elsewhere, the interest rate is about 2.7 percent on loans that can extend for 30 years; those who do have access to other credit have to pay about 5.4 percent.
For weeks, small business organizations and government officials have been criticizing the pace of similar loans the agency makes to companies; fewer than 3,000 such loans have been approved, and roughly 800 checks have been sent out, for less than $11 million.
Housing is a crucial issue in the Gulf Coast States, where hundreds of thousands of houses were damaged and close to 170,000 were destroyed, according to the American Red Cross.
Historically, insurance proceeds, not government programs - and certainly not the Small Business Administration - contributed most of the money to rebuild houses, said Mary C. Comerio, a professor of architecture at the University of California, Berkeley, and author of a 1998 book on disaster recovery. But, Ms. Comerio added, "There is still this expectation that the government is going to do something to make people whole."
Indeed, less than 20 percent of Louisianans think that insurance should cover the costs of rebuilding, while more than 50 percent say that the federal government has the primary responsibility to pay for it, according to a survey of 653 state residents released in late November by the Public Policy Research Lab at Louisiana State University.
But for even the most fortunate victims of the hurricanes, it may take both insurance proceeds and a Small Business Administration loan to give them even a chance of rebuilding.
Craig S. Sciambra, 34, describes himself as blessed, even though his two-year-old house in the Lakeview section of New Orleans had five feet of water inside and has been declared a total loss. He still has his job as an engineer, his wife still has her job as a certified public accountant, and they had a lot of flood insurance.
Mr. Sciambra has also been approved for an S.B.A. loan and mortgage refinance. "It would be really hard to make ends meet without it," he said.
Many of Mr. Sciambra's neighbors have also been approved for such loans, according to a list of loans released by the agency and mapped by The New York Times. Well-off neighborhoods like Lakeview have received 47 percent of the loan approvals, while poverty-stricken ones have gotten 7 percent.
Middle-class black neighborhoods in the eastern part of the city have lower loan rates, too, the data suggest, at least so far.
Some residents, like Diane Fleming, 57, are in limbo. A schoolteacher who lost her home of 26 years in New Orleans East, along with most of her possessions, Ms. Fleming has been shuttling between Houston and a friend's house in New Orleans.
FEMA referred her to the Small Business Administration, which said it would not make a decision about her application until she heard from her insurance company, Ms. Fleming said.
"Meanwhile," she said, "I have no place to live."
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