[StBernard] State, fed dispute puts roadblock in Road Home

[Westley Annis]

In a startling rebuke, federal housing officials told the Blanco
administration Friday that the state's Road Home grant program violates
federal regulations by dictating that homeowners collect their awards in
installments instead of allowing lump-sum payments.

The dispute stems from different rules governing two types of Housing and
Urban Development program. HUD officials said the escrow requirement
violates the Road Home's status as a "compensation" program - which seeks
simply to make recipients whole, with few strings. Instead, tying
disbursements to stages of completed construction makes it a
"rehabilitation" or "rebuilding" program - which trigger a slew of
environmental, fair housing and wage regulations the state hasn't followed
thus far. 

Louisiana officials said they designed Road Home as a "hybrid" of the two -
with intensive HUD input, and step-by-step approval - in an effort to both
safeguard citizens from fraud and encourage them to rebuild their homes
instead of spending the money for other purposes. 

HUD officials assured them the program as designed did not have to meet the
onerous regulations, state officials said. But HUD officials countered that
the state's practice has deviated from the approved plan because it doesn't
give homeowners any options regarding how the money is disbursed. The state
says it is following the plan HUD approved. 

Officials on both sides will meet again Tuesday. 
A stunned Gov. Kathleen Blanco and top state officials said the HUD
interpretation leaves them with two unattractive options: Start paying
homeowners their grants in a lump sum - which they say leaves homeowners
open to predatory mortgage companies and contractors and also eliminates an
incentive for rebuilding; or subject residents to a slew of cumbersome and
expensive regulations - an option they immediately rejected. 

"We're finally getting momentum and here they come along and change the
rules," Blanco said. "I think it's crazy. I don't know right now the best
course of action." 

While Louisiana officials responded to the situation as nothing less than a
crisis, HUD officials made it clear they see a simple solution. If Louisiana
eliminates the escrow accounts - or makes them voluntary, which would allow
resident to choose the protection the state now mandates - the program will
fall back into compliance. All the state must do is give homeowners the
power to handle their money as they see fit, federal officials said. 

"We share the goal of rebuilding the Gulf Coast as fast as possible," said
HUD spokeswoman D.J. Nordquist. "And we believe the state can expedite that
process by implementing a direct compensation plan, which is the plan they
submitted to us and we approved." 

After HUD alerted the Blanco administration in a morning conference call,
state and federal officials sharply debated the effect of the new
interpretation on grant recipients. State officials warned that abolishing
the mandatory escrow provisions could further bog down the program with yet
another logistical nightmare, though Blanco declined to speculate on the
extent of potential delays. 

By contrast, Nordquist said a the federal interpretation ultimately could
put more money onto the street faster by eliminating the requirement that
funds be handed out as each stage of rebuilding work is completed. For grant
recipients who have mortgages, their lenders likely already would require
the money be put into an escrow account and paid out in drafts. 

Citing Mississippi's direct compensation program as an example, HUD said
such an approach accelerates the process of getting money to homeowners.
Though many Mississippi residents whose homes were destroyed by Katrina have
yet to receive federal compensation, the program avoids bank management of
the award money and simply cuts a check to eligible recipients for the
determined amount. 

HUD said it shares Louisiana's goal of getting the Road Home program into
high gear. To that end, officials said, it had agreed to waive as many as 75
regulations that might have slowed things down. They've also agreed to
grandfather in the roughly 3,000 Louisiana residents who have already closed
their Road Home grants.

Changing the rules? 

What enraged state officials most was HUD stepping in to point out legal
violations months into an already regulation-laden process. Distraught state
officials said they had kept HUD in the loop every step of the way, and
seethed with anger that Washington seemed to introduce a new complication
just as the slow-moving program finally started to hum. 

"We've been through this with HUD over and over and over again," said an
exasperated Suzie Elkins, director of the state's Office of Community
Development, which manages the Road Home. 

State officials point to the program's action plan, negotiated carefully
with HUD officials last July. The plan says that mortgage lenders had agreed
to not force homeowners to use Road Home money to pay off mortgage liens and
back-payments, and, in exchange, the grant money would be deposited in a
disbursement account. 

The state says that should have made its plans clear to HUD a long time ago.


But the action plan goes on to say: "The homeowner and the first mortgage
lender will be able to jointly manage the funds in the account." 

That indicates a collaborative process, but that's not what happens in
practice, said HUD spokeswoman Nordquist. When the federal agency examined
actual grant closings, which began in earnest only recently, it discovered
the homeowners did not have equal say in how the money is paid out. 

"If they can jointly manage the account, the homeowner should be able to
take the money out when they want," Nordquist said. "You can look at things
in writing, but until you see it in practice, you don't see how it works." 

HUD says the mandatory escrow accounts, with no free access for the
homeowners, is what makes the Road Home into a rebuilding program instead of
a direct compensation program. 

The state now faces a dilemma. If it wants to keep the program as it is, it
may force homeowners to undergo a strict regimen of environmental reviews on
their property. They'd also be subject to fair-housing tests and be required
to pay prevailing wages to all workers, just as the government is when it
undertakes construction work. 

That, Louisiana Recovery Authority chief Andy Kopplin says, is untenable,
and any change mandated by HUD will be to the detriment of homeowners
desperate for grant money. 

"If they don't re-evaluate their position, we'll have to make programatic
changes in mid-stream and no matter what they are, it will slow us down," he
said. 

The state could decide to eliminate the escrow accounts and start paying all
the grants directly to the homeowners, making Road Home a traditional
compensation program. Nordquist said that should get the money out on the
streets faster. Blanco said it would force more complicated software changes
and speculated it would slow the crawling program to a virtual halt. 

"I can't tell you how tired I am of reprogramming software," Blanco said,
just as the latest two-week slowdown for software updates at the Road Home
had supposedly ended. "This blindsides us," she said.

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This should NOT be a problem.  They calculate and send a check...boom.  And
we can get Big Mamma off our backs.