Road Home question remains: Lump sum or disbursements?

THE ASSOCIATED PRESS

State mortgage lenders are hoping to preserve a key element of the beleaguered Road Home buyout and repair program for victims of the 2005 hurricanes.

Two weeks ago, the federal department of Housing and Urban Development said the state program, which doles out federal money to help victims relocate or rebuild their homes, violated federal rules by mandating installment payments instead of lump sum allocations. HUD said installments require costly environmental and labor reviews that must take place with all federal rehabilitation programs.

But lenders like the installment payout plan, fearing some homeowners might misuse a lump sum for something other than home repair.

For the past two weeks, state and federal negotiators have been trying to work through a compromise.

One option is a plan endorsed by the New Orleans faith-based organization The Jeremiah Group. The plan would make payments available to the homeowner and the lender jointly. In this scheme, borrowers would have a choice: take a lump sum, which their lender could claim for mortgage payments; or, take installments as repair work is completed, without lenders laying claim to the money.

The Rev. Walter Baer, pastor of Grace Episcopal Church, said the group is worried the state will push for lump-sum awards so the money will be out of its hands and homeowners will be stuck battling the banks over how to use it.

“The proposal we are supporting assures that homeowners have a choice in how to receive their awards, that they receive an incentive to rebuild and that they are protected from having mortgage companies seize their Road Home grants,” Baer said.

The state’s mortgage bankers want to ensure that homes are rebuilt to back their loans and to protect neighboring property values.

“We still think it will come down to disbursement accounts,” said Francis Creighton, senior director of government affairs for the national Mortgage Bankers Association. “It’s the only way.”

That association, along with the Louisiana Bankers Association and Fannie Mae, met in Washington through the weekend, looking for the best way to preserve the existing installment rules. Currently, homeowners can get only $7,500 in their first grant installment, and receive the rest of the money in thirds as they prove they have completed repairs. Louisiana officials had expected to send a new agreement with the lenders to federal housing officials by the end of this week, but the lending community still has some concerns.

Two weeks ago n nine months into the homeowner grant program n HUD officials informed the state it would have to change its grant disbursement methods or submit to onerous environmental and labor reviews on tens of thousands of properties.

To avoid the expensive, time-consuming reviews, the state chose last week to make direct compensation grants available to homeowners without mortgages, starting in April. But the lenders say a similar program for mortgaged properties will not fly.

Lenders are worried that any upfront, lump-sum grant payments will be an open invitation for homeowners to use the money for something other than their homes, leading to rampant blight that drives down property values for everyone.

“This can cause a 100 percent increase in blight, and we already have a blight problem as it is,” said Alden McDonald, president of Liberty Bank and a participant in some of the lenders’ continuing negotiations.