[StBernard] Aid flap is new threat to New Orleans rebuilding

[Westley Annis]

Aid flap is new threat to New Orleans rebuilding
Sun Apr 8, 2007 9:12 PM EDT



By Gina Keating

NEW ORLEANS (Reuters) - As homes in New Orleans' flood-stricken zones inch
toward habitability, a bureaucratic storm is brewing between state and
federal relief agencies that could derail the city's recovery from Hurricane
Katrina.

The dispute over how $7.5 billion in federal aid is handed out is slowing
disbursal to more than 120,000 homeowners whose houses were damaged or
destroyed by the storm on August 29, 2005 and by subsequent flooding.

Officials from the state of Louisiana contend that a new federal requirement
that aid checks be issued jointly to homeowners and their mortgage lenders
could mean that money bypasses the owners -- many of whom lost their jobs as
a result of Katrina -- and goes straight to paying their defaulted mortgage
payments.

A federal official said the government, in demanding a change in payout
procedures, was relying on lenders to act fairly to New Orleans homeowners.

"If banks simply grab this money as a way to compensate for their subprime
losses, we would not consider that the moral thing to do," said Bruce
Sullivan, a spokesman for the U.S. Department of Housing and Urban
Development.

But state officials note that banks are feeling a pinch all over the nation
because of a crisis in subprime mortgages and many would be likely to grab
the Katrina cash. 

GRATEFUL

Meanwhile, Katrina victims grow older and angrier as their woes go
unanswered amid endless government bickering.

Barbara Johnson, 79, has all but lost faith that the government will come
through with the aid she needs to rebuild her mold-infested home on a nearly
deserted block of 1940s bungalows in St. Bernard parish, so she turned to
charity.

"I am so grateful for the love of these groups that come in, because the
city is not doing a 'blah blah' thing," Johnson said as college kids on
spring vacation ripped out water-logged debris and piled it roof-high in her
front yard.

Throughout St. Bernard, the Ninth Ward and Lakeview, some of the hardest-hit
neighborhoods, temporary trailers pop up as residents return. But the city's
population is only about half of what it was before the storm.

Johnson has been waiting for funds from the Federal Emergency Management
Agency and the state-run, federally funded and roundly criticized Road Home
program since being rescued from her attic days after Katrina hit the U.S.
Gulf Coast.

The Road Home program has received more than 121,000 applications and has
60,000 still to process, and has closed on fewer than 6,100 of them. Of $7.5
billion in funding, some $4.7 billion has been allocated, but not
necessarily paid out.

The standoff between state and federal officials makes it even less likely
that residents like Johnson will see any money, unless banks agree not to
claim the back mortgage payments.

It has also prevented the state from rolling out a new software program that
was supposed to help reduce the backlog of claims. 

STALLED

As state and federal officials try to resolve their differences, the state
is struggling to keep money flowing and "maintain some kind of protection
for the homeowners to do repairs on the property," said Natalie Wyeth,
spokeswoman for the Louisiana Recovery Authority.

Wyeth said the state and HUD expect to announce this week how aid will flow
to homeowners with mortgages, and what lenders are likely to deduct from
grants, which average about $76,000.

The state agreed last week to pay out grants to homeowners without mortgages
in lump sums and with less oversight to ensure that the funds were spent on
repairs.

Most streets in once-submerged neighborhoods remain deserted. Despite a
burst of grants from the state program last month that fueled new
construction, some residents are angry at the slow recovery.

"It doesn't make sense. Everywhere we been, we build other people's
(countries) but when it come to ourselves it's completely different," said
Vernon Lawrence, 75, pointing to the cost of the Iraq war and
reconstruction. "Here we are in this country suffering like hell."

Lawrence was speaking after coming out of the Road Home's office in East New
Orleans, not far from where his two-story home flooded during the storm. He
was applying for a grant and was pessimistic.

After his insurance company failed to pay out on his homeowners policy, he
managed to gut his home and make it livable with a $15,000 grant from the
Federal Emergency Management Agency. He doesn't hold out much hope of
getting relief from the government any time soon.

"They going to preach a good sermon but...I just wonder if they're going to
deliver the things they said they're going to," he said.