Sunday, January 22, 2006

The Catch 22 of Disaster Emergency Assistance

If your world was turned upside down by a natural disaster would you be able to sort through the labyrinth described in the following New York Times article?  Or would this web of hope and rejection lead you to despair?


The past month and a half I have been struggling through the maze of reviewing Medicare plans for my mom and negotiating my own personal healthcare and financial issues.  Last week I reached my emotional precipice and had to take a week off to sort things out.   During this hurry-up and wait process, I had a chance to start catching up on a backlog of email and news articles.  Focusing on the struggles of the hurricane victims in the gulf coast, the earthquake victims in Pakistan, and the coal miners in West VA, helped me regain a perspective on my own comparably insignificant problems.   Yet after viewing a CNN news segment about a recent spike in the suicide rate in New Orleans I realize that my own experiences give me a glimpse into how the quagmire of bureaus facing many gulf coast residents can test the strongest faith and lead to feelings of hopelessness.  plk

Loans to Homeowners Along Gulf Coast Lag - New York Times
Published: December 15, 2005
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.

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.  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 stated.  "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.

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.

Summarized by Copernic Summarizer


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