A plan to bail out property owners in flood-ravaged sections of Louisiana has drawn fire from the White House, but the bill's proponents continue to seek congressional approval.
The State of Louisiana has estimated the cost of repairing the more than 217,000 flood-damaged homes in the state at $10 billion, after insurance payments.
Repairing the 95,000 damaged homes in New Orleans alone would cost between $8 billion and $10 billion, including $3 billion to $6 billion after insurance payments, reports the Mortgage Bankers Association.
House Resolution 4100, introduced by U.S. Rep. Richard Baker, R-Baton Rouge, would establish a federally funded Louisiana Recovery Corp. to pay off mortgages and buy out homeowners' equity. The plan contemplates buyouts at 60% of pre-Katrina home values. Commercial buyouts would be capped at $500,000 per property. Acquired properties would be grouped for resale to developers, helping to fund the program.
The measure enjoys bipartisan support; one of its chief advocates is Louisiana senator and democrat Mary Landrieu. House leaders agreed to attach the proposal to December's appropriations bill, but Senate leaders objected because the White House hadn't taken a stance on Baker's proposal.
Presidential resistance
The White House openly opposed the Baker bill on Jan. 24, when Donald Powell, President Bush's coordinator for hurricane relief, said previously appropriated Community Development Block Grant funds would be sufficient to assist homeowners who suffered the greatest losses from the storm. The CDBG program provides state and local governments with federal funding for specific community improvement programs.
Louisiana's share of $11.5 billion in CDBG funds granted to Mississippi and Louisiana for flood relief last year is a little more than $6 billion. Powell said the administration preferred block grants over the open-ended spending and added bureaucracy proposed in the Baker bill.
Powell's statement was a blow to organizations that had rallied behind the Baker proposal. “In principal, we've all been supporting Congressman Baker's bill because it's the best plan out there,” says John McIlwain, senior resident fellow for housing at the Urban Land Institute.
“Right now, many people are in limbo and don't know whether to rebuild or what to do next. There needs to be a plan, and there needs to be funding for that plan, but right now there is neither,” McIlwain says.
In suggestions it submitted last year to New Orleans Mayor Ray Nagin's hand-picked team — known as the Bring New Orleans Back committee — ULI recommended the formation of a Crescent City Rebuilding Corp. The mayor's committee has pushed for the ULI version of a restoration corporation, which would buy properties at 100% of pre-Katrina values, wield eminent domain powers and function like a traditional urban renewal authority.
An earlier version of the Baker bill included a provision for eminent domain authority, but Baker removed that item to make the bill more palatable in the anti-eminent domain climate that followed the Supreme Court's decision in Kelo vs. New London, Conn., late last year.
Other supporters of the Baker legislation say the proposed Louisiana Recovery Corp. should have even greater jurisdiction. The Independent Community Bankers of America (ICBA), for one, urged Baker to propose a recovery authority with jurisdiction for all hurricane-damaged regions of the Gulf Coast, including those in Louisiana, Mississippi and Texas. The Washington, D.C.-based ICBA is a trade organization representing approximately 4,500 community banks, including about 120 in areas damaged by Katrina.
The ICBA had previously suggested handling bad loans on hurricane-damaged properties through an agency formed along the lines of the Resolution Trust Corp., which bought out and resold properties in the 1990s after the savings and loan crisis.
“No one is going to get 100% on mortgage buyouts, but it would be helpful if people got something and there were some certainty to the process,” says Steve Verdier, senior vice president and director of congressional affairs at ICBA. “We still think the Baker bill or something like it would be a helpful way to deal with the situation.”
Proponents forge ahead
Despite White House opposition, the Senate's Banking, Housing and Urban Affairs Committee conducted a hearing on the Baker plan Feb. 15. At the hearing, Sen. Landrieu extolled the Baker bill's three key provisions, which include a collaborative approach by all levels of government; shared losses between property owners and lenders while giving owners some return on their equity; and a temporary stability and certainty that would give planners time to map out a larger recovery. Landrieu implicitly urged cooperation from the White House as well.
“I don't think anyone in Louisiana is wedded to any particular detail of this solution. We are willing to talk, to compromise, to amend our plans,” Landrieu told the committee. “But that cannot happen if there is no one to talk to.”
Matt Hudgins, a veteran business journalist, covers legislative issues and industry trends for National Real Estate Investor. He is based in Austin, Texas. His e-mail address is [email protected]