[StBernard] AP INVESTIGATION: Katrina a tale of SBA failure

[Westley Annis]

AP INVESTIGATION: Katrina a tale of SBA failure
Story Created: Aug 21, 2010 at 11:30 PM America/New_York

CHALMETTE, La. (AP) - Five years after Hurricane Katrina, Jay Young is still
haunted by the desperate voices on the other end of the telephone crying and
begging for help.

As a loan officer for a federal agency that was supposed to help homeowners
and businesses get back on their feet, he had high expectations he could
make a difference. But he recalls how he was forced to turn away many
qualified applicants because of what he says was pressure from his
supervisors to close files quickly.

Karen Bazile remembers having high hopes, too, when she applied for a loan
from the same agency, the Small Business Administration, to rebuild her home
in the New Orleans suburb of Chalmette. While she ultimately got the money,
she quickly lost faith as she struggled with different loan officers who
misplaced her paperwork and told her she had only 48 hours to find and fax
critical documents or her application would be canceled.

___

EDITOR'S NOTE: This story was reported by Associated Press writers Mitch
Weiss, Michael Kunzelman, Holbrook Mohr, Cain Burdeau, Troy Thibodeaux and
Jason Bronis. It was written by Weiss.

___

Some 160 miles to the east, in Alabama, Erik Schmitz, former commodore of
the Fairhope Yacht Club, takes in a breathtaking view of Mobile Bay from a
posh new clubhouse rebuilt in part with a $1.5 million disaster loan, the
maximum from the SBA. For Schmitz, the entire loan process was smooth
sailing.

While stories of the Federal Emergency Management Agency's contaminated
trailers and the Army Corps of Engineers' inability to shore up the levees
captured the headlines in the aftermath of the deadly storms of 2005, the
bungling of the SBA, the lead federal agency helping people rebuild their
homes and businesses, has largely been untold.

The sagas of Schmitz, Bazile and the SBA's Young, who worked out of the
agency's massive loan processing center in Fort Worth, Texas, collectively
reveal how the SBA failed in so many ways, an ominous experience as the
agency prepares to play a similar role in the aftermath of the massive BP
PLC oil spill.

These are stories of a mismanaged bureaucracy that still hurt half a decade
later: tales of applications for low-interest disaster loans that should
have been approved but were not, of applications deleted from the SBA
computer system for no valid reason, of impossible-to-meet deadlines
manufactured to clear backlogs, and of a process so chaotic and painful that
thousands simply gave up.

An Associated Press investigation based on more than 200 interviews,
thousands of pages of public documents obtained under the federal Freedom of
Information Act and a first-ever detailed computer analysis of SBA data from
hurricanes Katrina and Rita found that:

- Despite the obvious need, 55 percent of homeowners and businesses that
applied for help after the hurricanes were turned away. According to data
provided by SBA, of 318,953 applications processed, 175,463 were rejected
and 143,490 were approved.

- Only 60 percent of the loan money approved by SBA ultimately reached
applicants. Over the years, SBA officials have told congressional committees
that the agency had approved more than $10 billion in loans, touting it as
an example of how SBA had helped those on the Gulf Coast. However, according
to the data, only $6.1 billion of the approved loan money has been
dispensed. SBA officials say many applicants never accepted the loans
because they found other ways to rebuild, including using insurance money.
But many former applicants said in interviews that they just walked away
because the entire process took too long and was too complicated.

- Of the money SBA did distribute, $357 million - nearly 6 percent - has
never been repaid. More than a dozen people whose loans were charged off
told the AP that the agency hasn't contacted them about repayment.

- Country clubs, yacht clubs, exclusive private schools and megachurches
received millions in loans from the agency founded in 1953 with a mission to
"aid, counsel, assist and protect the interests of small business concerns."
Some of the more substantial operations rebuilt bigger and better, often
contradicting SBA rules that say damaged buildings should be repaired only
to their original state.

- Homeowners and businesses in higher-income areas were more likely to get a
loan than those in lower-income areas, according to AP's analysis of SBA
data by ZIP code. "The truth is that only the wealthy moved through the
system easily," said Gale Martin, another former SBA loan officer. "If you
were of a certain income, we funded you first, which is not the way the
system is supposed to work." Martin contended that contrary to the SBA
mission to especially help people who didn't always have the means to
rebuild, applicants with higher credit scores and bigger incomes were
cherry-picked for processing first because those files could be closed
quicker.

- A disparity also existed along racial lines. For example, the
predominantly white, wealthier Lakeview section of New Orleans had the
city's highest ratio of approvals to rejections, while the lowest approval
rates were in poorer, mostly black areas like the Lower 9th Ward. But a
racial disparity was clear even among economically similar areas. SBA
approved nearly 66 percent of loan applications in a predominantly white
part of suburban St. Bernard Parish but approved only 42.1 percent in a
predominantly black, adjacent section of eastern New Orleans with comparable
median household income. SBA officials said they don't collect information
about race on loan applications, but try to reach out to applicants in poor
neighborhoods. Civil rights leaders say the agency hasn't done enough to
help.

SBA officials insist the agency today is better prepared to handle a major
disaster.

"We're not proud of what happened during the 2005 Gulf Coast hurricanes,"
said James Rivera, deputy associate administrator of SBA's office of
disaster assistance. "Our response was slow, but we've learned from our
mistakes."

During the past five years, agency officials say, they have added staff,
improved technology and simplified the loan process to push money out
quickly to disaster victims.

But recent reports by government watchdog groups and some critics have
slammed SBA for being too slow to implement measures that could improve an
agency with a troubled past.

Congressional investigators and SBA whistleblowers question whether the
agency is any better equipped for a major disaster today, as the region
grapples with the oil-spill related assault on three pillars of its economy
- seafood, tourism and offshore drilling.

The SBA is once again setting up disaster recovery centers along the Gulf
Coast, although the oil spill effort will likely be overshadowed by the
hurricanes' economic toll.

"This is going to happen again - tomorrow - if there's another Katrina,"
Martin said. "They didn't fix enough for it not to happen."

___

Images of New Orleanians trapped inside the Superdome without food and
water, or desperately waiting on rooftops for help, haunted Americans in
September 2005. Police officers walked off the job, looters ransacked
downtown shops, and critics scolded the Bush administration for being too
slow to respond.

Meanwhile, a different kind of chaos was unfolding inside the SBA.

A new computer system that was supposed to speed and simplify the loan
process crashed time and again, resulting in massive delays. But that wasn't
the only problem.

"There were lots of people sitting around not doing anything with thousands
of applications pouring in everyday," said Brad Durtschi, a former SBA loan
officer who now works for FEMA.

In the years leading up to the storms, the agency's staff had been cut. When
Katrina hit, followed by Rita about three weeks later, SBA had only 880
employees to process hundreds of thousands of loan applications, including
190 loan officers working at the Fort Worth center.

SBA scrambled to hire several thousand additional staffers, many to work in
Texas, where loan applications filed in dozens of makeshift disaster
recovery centers along the Gulf Coast were sent for processing. The new loan
officers - many from the private sector, with no loan processing experience
- were rushed into service and expected to navigate a complex set of rules
and regulations.

The loan applications piled up.

By December 2005, the system was gridlocked. Hundreds of thousands of
applications were sitting in computer queues awaiting processing.

With congressional pressure mounting to turn loans around more quickly, the
agency began using new methods to clear the backlog that had little to do
with helping people get loans, former loan officers and supervisors told the
AP.

Supervisors would reject applications if a single sheet of paper or
signature was out of place. Loan officers were required to process up to
twice as many applications per day. When one landed on their desk, a loan
officer had to try three times within 24 hours to reach the potential
borrower by telephone. If they didn't, the loan was either declined or
indefinitely shelved.

If shelved, the loan application was effectively canceled and a letter was g



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-a-tale-of-SBA-failure#ixzz0xMRQebJS