Louisiana officials seek clarity on limited SBA loan fix; 10,000 homeowners could get help -- or none
As many as 10,000 flooded homeowners in Louisiana who have been hampered in rebuilding by eligibility restrictions on federal aid dollars could access up to $120 million in grants due to a recent change in federal law, state officials say.
But the extent to which homeowners will be able to benefit, state officials say, depends on how the U.S. Department of Housing and Urban Development interprets a recent change to the federal duplication of benefits guidelines.
State officials say they are still waiting for specifics from HUD. In the worst case scenario, they say, the status quo will remain and no additional homeowners will gain access to aid.
Two months ago, Congress passed what was regarded as a limited fix for flooded homeowners who found themselves ineligible for grant dollars because they had been approved for a disaster loan from the Small Business Administration.
They were deemed ineligible for grants through the $1.3 billion Restore Louisiana program even if they declined to take out an SBA loan or took out a smaller amount than it cost to repair their homes because they believed they wouldn't be able to afford to pay back a larger sum.
The new law says homeowners approved for SBA loans and who declined assistance won't have that counted against them when they seek other federal benefits, such as a grant through the Restore Louisiana program.
Gov. John Bel Edwards wrote a letter to Department of HUD Secretary Ben Carson this week urging him to speedily craft guidance on the change in federal law. Edwards, a Democrat, is also asking Carson to interpret the law in a broad way that will help more homeowners get assistance.
"It is critically important that HUD correctly interprets Congress’ intent in this law and allows your grantees to offer grants to these homeowners for their remaining unmet rebuilding needs, ignoring SBA loan amounts that they never drew down,” Edwards wrote in the letter. “As we continue to rebuild from the floods, this remains the single greatest complaint for homeowners."
A spokesperson from HUD did not directly answer questions about this issue, deferring questions to the agency's 2011 policy memo that counts SBA loans as duplicative benefits.
After the 2016 floods that affected some 113,000 homes in Louisiana, many homeowners applied for an SBA loan at the insistence of the Federal Emergency Management Agency, Edwards said in the letter.
Under existing guidelines, anyone approved for one of the low-interest loans must deduct the total value of the loan from any further federal assistance — even if they did not close on the funding or draw down a dollar, said Pat Forbes, director of the Louisiana Office of Community Development, the agency overseeing Restore Louisiana.
The only wiggle room is for people who are low to moderate income and never closed on the loan, Forbes said.
Because of this provision, thousands of homeowners have seen their potential benefits from the Restore Louisiana program greatly reduced or even eliminated.
The limited fix came as part of the federal budget bill signed by President Donald Trump on Feb. 9. At the time of passage, Republican Sen. John Kennedy acknowledged the change did not go as far as many Louisiana officials were seeking. They wanted to allow homeowners who took out SBA loans to seek assistance from Restore Louisiana. But Kennedy said it was the “next-best-thing” they could get and was all that could get passed through the Senate.
The new law lends itself to multiple interpretations that could impact from zero to 10,000 people, and HUD has not yet indicated which one it will choose, Forbes said in an interview.
State officials want HUD to interpret the law to mean that only that part of the loan a family drew down counts as duplication of benefits. For example, if a family was approved for a $90,000 loan but only drew $25,000, only $25,000 would be deducted from a potential Restore Louisiana grant.
If this interpretation is applied, some 10,000 additional homeowners in Louisiana could be eligible for about $120 million in grants to complete rebuilding and recovery, Forbes said.
"Counting money that they never drew means that we can’t fill that gap for them," Forbes said. "And in most cases, the reasons those people didn't draw those funds is because they knew they couldn't afford (to repay) the note on it. So what we run the risk of is less than full recovery, because folks don’t have the resources they need to finish rebuilding."
Forbes said it is possible, though that, HUD will take a view of the law that maintains the status quo. Or, he said, the federal agency could also say that it applies only to people who were approved for loans and never closed on them or to those who closed on loans but never drew any money.
If HUD limits its reading to those latter two categories, about 3,800 people could access about $25 million in aid dollars, Forbes said.
Forbes said the program has funds to cover either outcome.
Forbes and Edwards contend that Congress intended HUD to read the law with the most liberal interpretation.
"By inclusion of the language, Congress clearly intended to modify the current approach of federal agencies, including HUD," Edwards wrote in the letter.
Forbes said the state is following the policy outlined to them by HUD officials. He said representatives from the office of U.S. Sen. Bill Cassidy, R-Louisiana, have indicated HUD will take up the broad interpretation the state is hoping to achieve.
Forbes said waiting for HUD to publish its guidance is having real effects for homeowners in need of help. He said it is also slowing the process and adding to program costs, because people seeking assistance are processed and put on hold.
“Not only are we making these people wait for their recovery, if there is going to be somebody we can help ... it will cost more to deliver the program," Forbes said.
Rep. Garret Graves, R-Baton Rouge, said he’s still hopeful that language he wrote with Rep. Cedric Richmond, D-New Orleans, to allow people who received SBA loans to get full assistance will make it through Congress. Their provision was included in a disaster aid package passed by the House but wasn’t included in the final Senate-written version which made it into law.