[StBernard] Road Home lump sums urged

[Westley Annis]

La. seeks federal OK to award aid directly 
Thursday, April 05, 2007
By David Hammer
Louisiana has asked federal housing officials to let it pay every Road Home
grant recipient directly in a lump sum, with no government strings attached
for those with mortgages or other debts, state officials said Wednesday. 
State officials want to replace current rules that require homeowners to
collect the grants in installments from an escrow account, tied to
completion of storm-damage repair work on their homes. 
"The advantage of a direct payment would be that homeowners have immediate
access to their entire grant award for repairs, and would be in the driver's
seat in negotiating with their lender regarding the repayment of any
arrearages," or back payments owed on the mortgage, said Walter Leger,
housing chairman for the Louisiana Recovery Authority. 


We heard the public loud and clear, and this option would give them what
they asked for: sole access to their grant award within days of their
closing," Leger said. 
With lump-sum payments, the state theoretically gets the money out more
quickly and leaves the homeowners to deal with mortgage lenders and
contractors on their own. But the proposed policy change will do nothing to
speed up the state's lengthy eligibility checks, award calculations and
verification procedures that have kept grant closings coming at a slow pace.

As of Tuesday, 6,339 Louisiana homeowners, or about 5 percent of the 121,635
applicants, had closed on their grants. 
The federal Department of Housing and Urban Development, which is financing
the state's $7.5 billion aid program, is reviewing the new lump-sum payment
plan, drafted in response to HUD recently notifying the state that its grant
program violated federal guidelines by requiring the installment payments. 
Mortgage lenders criticize 
Meanwhile, mortgage lenders who were counting on some form of installment
payments tied to rebuilding expressed disappointment with the state's
response to the HUD directive. 
"Rather than select an option that protects borrowers from fraud and
promotes rebuilding, the state, because of pressure from HUD, has chosen a
path that will lead to more foreclosures, more fraud and less rebuilding,"
said Francis Creighton, senior director of government affairs for the
national Mortgage Bankers Association. 


The LRA, which created Road Home policies, and the Office of Community
Development, which oversees the program, declined to provide further details
of the state proposal Wednesday. The agencies also refused to release the
documents they sent Wednesday morning to HUD. 
"The state will not be releasing any documents until final approval is
received from HUD," Office of Community Development spokeswoman GeGe
Roulaine said. 
HUD spokeswoman D.J. Nordquist said the department had just received the
documents and needed more time to review them. 


"We fully appreciate that time is of the essence for all the homeowners of
Louisiana who are struggling to get their lives back in order," HUD
spokeswoman Nordquist said. "We anticipate having a final answer very soon:
no later than Friday." 
Tailored to HUD objections 
The state changes, however, appear to be tailored specifically to appease
objections to the program raised by HUD, so the federal agency would seem
likely to approve them. The proposed policy change comes more than two weeks
after HUD stepped in and told the state that it was doing too much to force
homeowners to use federal money for rebuilding, when HUD had approved the
Road Home as a simple compensation program for losses. The state decided to
change its payment process rather than run what HUD determined was a forced
rehabilitation program, one that required costly environmental and labor
reviews. 
A change would mark the end of two weeks of complicated negotiations. State
officials spent the end of last week and through the weekend negotiating
with mortgage lenders. A change in the Road Home installment payment process
will nullify pacts the state and the lenders had signed last year, in which
the lenders agreed not to commandeer people's grant money for mortgage
payments as long as the homeowners could prove they were using the money to
rebuild. 
Creighton said the state rejected several proposals from lenders to keep
some form of payment in installments tied to repairs. The lenders say direct
compensation is dangerous for Louisiana's rebuilding effort. 
They say it could lead to homeowners taking the money and leaving the area,
or spending it on something else while their homes rot and push down all
nearby property values. Also, it could open the door for predatory
contractors to charge exorbitant fees before work begins, instead of the
current setup, in which contractors are tied to the state-ordered system of
disbursements. 
Creighton said lenders are preparing to take several actions to make sure
mortgage borrowers, particularly those who are already in default, don't
abscond with the Road Home grants. 

Recourse for lenders 
If back payments are owed on a mortgage and the lender finds out the
borrower got a Road Home check and didn't use it for repairs, the company
would be able to assert its rights under most mortgage agreements to
"impound a significant share of the grant proceeds to make back payments on
the mortgage," Creighton said. The lenders also have the option of putting
properties into foreclosure or suing in court to declare the borrower
bankrupt. 
"We do not want to do this, but at some point we have to do the responsible
thing for our companies and shareholders," Creighton said. 

To avoid such measures, Leger recommended that mortgaged homeowners who get
lump-sum payments should work closely with their lenders to meet legal
obligations and get additional financing, if necessary. 
"In addition, we believe that establishing a voluntary disbursement account
with their lender would be a good way for homeowners to guard against
creditors and fraudulent contractors," Leger said. 
Creighton said association members are prepared to work with borrowers when
they get their money, and Chris Spencer, regional spokesman for J.P. Morgan
Chase Bank, said Chase would "work with our homeowners on a case-by-case
basis." 
The lenders suggested everything from having the state guarantee loans when
the Road Home sends applicants their award commitment letters, to issuing
checks made out jointly to the homeowners and their mortgage companies, so
the borrowers and lenders could work out payment options. Creighton said the
state rejected that last proposal, which mirrors the setup in Mississippi. 
The Jeremiah Group, a New Orleans faith-based organization, also lobbied to
keep some form of the installments in place. It wanted homeowners to have a
choice between taking a lump sum, with the possibility of having to pay off
mortgage debt, or sticking with disbursements tied to rebuilding. The hope
was that HUD would see that as lifting a mandate on rebuilding and allow it
without requiring environmental and labor checks. 
When that didn't occur, the civic group changed tack and got behind lump-sum
payments as a way to get the money out as fast as possible. Still, the group
says it's critical that homeowners be made aware of their legal rights at
closing, so they know that lenders can't put pressure on them to pay off
their mortgages, which Karl Weber, a leader with the Jeremiah Group, said
was a problem in Mississippi, where grant recipients received lump-sum
checks made out to them and their mortgage companies jointly. 
However, Creighton said it's not in the lenders' interest to push borrowers
who are up to date on their mortgages to pay off their loans early, which
would cut down on interest the lenders earn.