[StBernard] EDITORIAL: Solving the buyout puzzle - From the Times-Picayune

[Westley Annis]

EDITORIAL: Solving the buyout puzzle
Sunday, February 19, 2006

Rarely have so many adults been so desperate to sit down and do some math. 

Tens of thousands of homes in greater New Orleans were destroyed or severely
damaged during and after Hurricane Katrina. And the owners of those
properties have been in limbo ever since. 

But finally there's some progress. New Orleans Mayor Ray Nagin, Plaquemines
Parish President Benny Rousselle, St. Bernard Parish President Junior
Rodriguez and St. Tammany Parish President Kevin Davis settled on a workable
relief plan last week that includes buyouts of the hardest-hit properties. 

Although the White House rejected U.S. Richard Baker's proposal for
federally backed buyouts of flooded homes last month, President Bush's
administration announced plans Wednesday to commit more money to our state's
recovery -- about enough money to make the new buyout plan work. If, that
is, the governor's Louisiana Recovery Authority agrees to commit a
sufficient share of federal aid to the metro area's housing needs. 

If that happens, flooded-out homeowners may soon be able to start
calculating what's best for them. That opportunity is long overdue. 

. . . . . . . 


For some property owners, their losses exceed their insurance settlements.
Others didn't have flood insurance at all, because their homes weren't in
the floodplain defined by the Federal Emergency Management Agency, because
they lived in areas where only minor street flooding was expected, because
they owned their homes outright but couldn't afford flood coverage. 

The bottom line is that a great many residents are bound to homes that are
uninhabitable, at least for the time being. 

For these homeowners, everything rides on arithmetic: How big is the gap
between their mortgage obligations and the present value of their property?
Will the federal government -- or some state or local government entity --
kick in money to free them from their mortgages or help them rebuild their
homes? If so, how much? 

Depending on how those numbers work out, flooded-out families might decide
to rebuild in place, or they might move to less flood-prone neighborhoods.
They could keep their heads above water financially, or they could end up
bankrupt and destitute. 

Their fate -- and the future shape of this entire metropolitan area --
depends heavily on the terms of a buyout plan. 

. . . . . . . 


Mayor Nagin calls his proposal the "Failed Levees Homeowner Recovery
Program." The name is partly a joke -- and partly an acerbic reminder that
mistakes by the U.S. Army Corps of Engineers led to the levee breaches that
flooded so much of the metro area. The program would help homeowners whose
only mistake was to trust in the quality of the corps' work. 

Specifically, owners who had 2 feet or more of water in their homes would be
eligible for buyouts. They would be paid the pre-Katrina market value of
their homes, minus any insurance settlements. Meanwhile, those who had flood
insurance and want to rebuild would get 80 percent of the difference between
the cost of their repairs and any insurance settlements. Those without flood
insurance would be eligible for grants worth 60 percent of the cost of
repairs. Under this structure, government agencies wouldn't end up rewarding
those who opt not to buy insurance. All payments would be capped at
$150,000. 

The Baker bill is structured differently. It would give homeowners at least
60 percent of their equity, and it would free them from their mortgages.
Under the Failed Levees plan, by contrast, someone with a high mortgage
balance -- the recent buyer of an expensive home, for example -- would
likely be better off rebuilding in place. Without any outside help at all,
though, such a property owner could face financial ruin. 

The Nagin plan has some appealing features. It sets clear priorities;
dealing with owner-occupied homes would be the first step, and aid to
businesses and renters might come later. And by compensating insured
homeowners for a higher percentage of their losses than uninsured
homeowners, the plan allays some federal lawmakers' concerns about creating
perverse incentives. 

. . . . . . . 


When the mayor and parish presidents first advanced the Failed Levees plan
neither the state nor local governments seemed to have enough money
available to make it work. The Bush administration had pressed state and
local authorities to pay for homeowner relief out of $6.2 billion in federal
Community Development Block Grants, but Louisiana was slated for a much
lower allocation of money per capita than Mississippi. And our state has a
host of other competing needs, including education and health care. 

The calculus changed Wednesday, when the administration announced plans to
give Louisiana an extra $4.2 billion. This development hardly seemed
possible earlier this month, when in his State of the Union speech the
president made only a brief reference to the continuing plight of the
hurricane-ravaged Gulf Coast. The new money won't solve all of our problems,
but it is a significant step toward fulfilling the promises that the
president made to greater New Orleans in September. 

. . . . . . . 


Some vital details still need to be worked out before struggling homeowners
will see any relief. For one thing, either local governments or the state
must create some kind of entity to write checks to homeowners and take
possession of bought-out properties. 

And a number of complicated questions are already evident. Should buyout
plans be coordinated with plans to shrink the so-called footprint of New
Orleans? What is a fair way to determine pre-Katrina market values -- in an
area where official property valuations are often absurdly low? Should the
plan be extended to cover homes that took on less than 2 feet of water?
(Jefferson Parish President Aaron Broussard has conditioned his support on
such a provision.) 

Nevertheless, flooded-out homeowners finally have some reason for hope.
They've been kept waiting long enough, and they deserve to know what their
options are.