Gulf Coast Redevelopment: Pathways to Recovery


Public and Private Programs Support Homeownership

Michelle Miller-Freeck/FEMA New elevated housing in Bay St. Louis, Mississippi. NeighborWorks New home being constructed in McComb, Mississippi. Kristopher Rengert, Community Development Expert, Office of the Comptroller of the Currency Despite significant obstacles, public and private institutions -- including banks -- have offered a wide range of resources to support homeownership in the Gulf Coast. Some programs took effect immediately after the 2005 devastation had occurred. Many forbearance programs, for example, automatically suspended mortgage payments without penalty for several months. Longer-term programs helped homeowners weigh their options: repair damaged homes, dispose of them, and find new housing. Easy answers were hard to come by, given the landscape at the time. More than 300,000 housing units suffered major damage or were destroyed in the 2005 storms. Over 190,000 of these units were owner-occupied. (See charts for details on damage to housing units.) Although the majority of these homes carried hazard and/or flood insurance, the coverage was insufficient to compensate most owners for their losses. If the magnitude of loss was great, so were the obstacles for moving forward. Gulf Coast homeowners faced these types of challenges: Repaying mortgages on damaged properties, while operating often with reduced income from job loss or disruption. Dealing with insecurity as planning organizations decide which severely damaged neighborhoods will have their infrastructure repaired and services provided and when this will happen. Negotiating insurance claims. Locating and paying for skilled labor to renovate their homes. Raising some existing homes onto a required raised foundation above the flood plain. Paying for the increased cost of insurance. Covering the increased cost of building supplies. Obtaining mortgage loan products in the face of tightened underwriting. How public and private institutions responded during these trying times has certainly been debated over the years. But this much is true: these institutions developed an array of programs to support homeownership immediately after the storms, and many programs continue to provide much-needed support for those already owning homes as well as new home buyers. Immediate Support for Mortgage Borrowers Realizing that many homeowners were unable to return to severely damaged homes and could be without access to their home mail or telephone services, banks and other financial institutions holding or servicing mortgage loans reacted quickly by implementing automatic forbearance programs. These gestures of goodwill typically allowed borrowers to suspend mortgage payments for several months. Sometimes, extensions were granted and payment plans were reduced. Fannie Mae and Freddie Mac implemented these policies for loans they guaranteed or owned in the hurricane-affected area. The Federal Housing Administration (FHA) has a standard set of protections for Presidentially Declared Disaster Areas. The FHA extended its protections for borrowers with FHA-insured loans, including requiring its servicers to extend forbearance provisions for 90 days. Subsequently, FHA provided several extensions of this forbearance program through June 2006, for borrowers that committed to working with their servicers to repay outstanding payments. The U.S. Department of Agriculture and the U.S. Department of Veterans Affairs instituted similar forbearance policies (see page 15 of the spring 2006 issue of "Community Developments"). Many banks also provided similar forbearance provisions to their borrowers. (See Capital One and Whitney National Bank articles.) Longer-Term Support to Preserve Homeownership Programs Supporting Existing Homeowners The federal government provided special allocations totaling $16.7 billion to Alabama, Florida, Louisiana, Mississippi, and Texas through the U.S. Department of Housing and Urban Development's (HUD) Community Development Block Grant (CDBG) program. The bulk of this funding went to Louisiana, which received more than $10.4 billion, and Mississippi, which received $5.5 billion. As described in greater detail below, both states dedicated substantial portions of these resources to help existing homeowners rehabilitate their homes. The legislation providing the special allocations lowered the normal CDBG income-targeting requirement for activities to benefit low- and moderate-income persons from 70 percent to 50 percent of the special allocations. In addition to providing this CDBG funding through the states, the federal government, through the FHA and private mortgage lenders, assists families whose homes were damaged or destroyed through mortgage programs. As described below, the FHA administers two mortgage programs that support homeowners' efforts to rehabilitate their properties or, in cases where their housing units were rendered uninhabitable, that help homeowners and renters to purchase new homes Louisiana's Road Home Homeowner Assistance Program The Road Home program helps homeowners repair or rebuild their homes, buy or build replacement homes, or sell unwanted properties for redevelopment or conversion to open space. To qualify, an owner would have had to prove that he or she owned and occupied the property as a primary residence before August 29, 2005, and the home must have been in a single- or double-unit structure. The owner must have registered for Federal Emergency Management Agency (FEMA) Individual Assistance, and the home must be categorized by FEMA as having been destroyed, having suffered major damage, or be verified as meeting the FEMA damage classification at the destroyed or major damage levels. The maximum funding under the program is $150,000 per homeowner. Actual maximum funding may be less and is the gap between the required resources for repair, rebuilding, or resettlement and the resources available from insurance, FEMA, or other sources. Individual homeowners often may not receive this maximum funding under the Road Home program because the assistance available to the program is capped. The Louisiana Recovery Authority (LRA) runs this program (see related article), and applications were due July 31, 2007. The program has assisted 105,000 homeowners through April 2008. For more information, visit the LRA's Web site. Mississippi's Homeowner Grant Assistance Program The Mississippi Homeowner Grant Assistance Program includes two phases to help rebuild homes destroyed by the 2005 storms. Some homeowners will receive grants under phases one and two. Phase one provided up to $150,000 in compensation grants for damages to a primary residence that were not compensated by FEMA, private insurance, or other sources. This phase served more than 20,000 homeowners through April 2008 with grants amounts averaging $71,000. By the time all grants have been made, phase one will have used approximately $1.28 billion out of the $3.24 billion that the state allocated for its Homeowner Grant Assistance Program. Phase two is still in operation and is expected to have made 5,100 grants after it finishes processing approved applications. This part of the program provides compensation grants of up to $100,000 to homeowners whose primary residences were damaged. In addition, phase two provides grants of up to $30,000 to eligible applicants to help them elevate their homes above the flood zone. Applicants must have a household income at or below 120 percent of the area median income (AMI) and agree to a covenant on their property that establishes building code, homeowner insurance, and elevation requirements for them and any future owner of the land. This program is intended to ensure that grant recipients protect their properties from flooding from future storms. FHA's Rehabilitation Mortgage Insurance Programs HUD's FHA 203(k) program provides refinance loans covering both the existing mortgage and the cost of needed rehabilitation. For owners of homes affected by the hurricanes, HUD increased the amount of rehabilitation that could be financed under the program and extended the time for completing financed rehabilitation activity. (See Capital One article.) Another HUD program, FHA 203(h), provides mortgage financing for families whose homes are destroyed or severely damaged in a Presidentially Declared Disaster Area. This financing is available to families who had been homeowners or renters and if their homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary. Insured mortgages may be used to finance the purchase or reconstruction of a one-family home that will be the principal residence of the homeowner. The mortgage amount is limited to the standard FHA insurance limit for the area where the home is purchased or reconstructed. Participants may buy homes anywhere in the United States. For more information, visit HUD's "Mortgage Insurance for Disaster Victims - Section 203(h) Web site. Banks have partnered with nonprofit organizations to finance the rehabilitation of owner-occupied units. In these partnerships, the banks provide construction financing, and nonprofits offer financial counseling and construction management to the owners. (See the NeighborWorks America article for an example of how the Neighborhood Housing Services of New Orleans has partnered with banks.) Mortgage Revenue Bond Programs for First-Time Home Buyers The Louisiana Housing Finance Agency (LHFA) operates several mortgage revenue bond (MRB) programs and one program that combines HOME Investment Partnership and MRB funds (HOME/MRB program) to support first-time homeownership for low- and moderate-income families. The first-time home buyer requirement is waived for the MRB-financed programs (not for the HOME/MRB program) for those buying in targeted economically distressed census tracts or in targeted parishes impacted by hurricanes Katrina or Rita. The requirement is also waived for buyers who had owned a home as of August 28, 2005, that was rendered uninhabitable by hurricane Katrina. Since the hurricanes, the LHFA has issued more than $200 million in MRBs, helping over 1,700 families buy homes in 2006. The Mississippi Home Corporation used $157 million in tax-exempt bond authority to issue MRBs to support Mississippi home buyers, many of whom were affected by hurricane Katrina. Qualifying home buyers are eligible for below-market interest rates, and the program helps pay for a portion of closing costs. More than 2,700 low- to moderate-income families, including 400 in the coastal counties, have purchased their first homes through this program. Mortgages are originated by participating lenders. Additional Funding for Increased Insurance Premiums The "wind pool" -- officially known as the Mississippi Windstorm Underwriting Association -- is a wind and hail insurer of last resort for homes and businesses in Mississippi's coastal areas, including Harrison, Hancock, Jackson, Stone, George, and Pearl River counties. The wind pool is funded through customer premiums and assessments from every insurance company in Mississippi. In 2006, the 16,000 policyholders insured for wind and hail damage, almost all of whom had already incurred devastating personal losses, faced the prospects of huge increases in their annual wind pool premiums. To offset the increased cost of reinsurance associated with the wind pool, Mississippi set aside $50 million in CDBG funding. This action enabled the Mississippi Insurance Commissioner to reduce the increase in wind and hail insurance rates, from a requested 400 percent increase to a 90 percent increase, saving the affected homeowners an average of more than $2,000 a year. By 2007, the wind pool had doubled to include 32,000 policyholders. That year, Mississippi passed the Mississippi Growth and Redevelopment Act of 2007, which created the Mississippi Windstorm Underwriting Association Reinsurance Assistance Fund. This fund created long-term resources to help the state keep wind pool premium increases at a manageable level. The fund is set up to operate through 2010. In 2006, LHFA created an innovative addition to its HOME/MRB program by creating an insurance assistance program that provides for two percentage points of the interest paid by borrowers to be placed in an escrow account to be used to prepay the homeowner's insurance premiums. This subsidy is covered by the HOME/MRB program in the form of a lowered interest rate charged to the borrower. For instance, as of August 2008, the nominal interest rate charged by the HOME/MRB program is 4.85 percent. As the borrower makes mortgage payments, the loan servicer deposits two percentage points of the interest into the borrower's escrow accounts for insurance and sends the remaining 2.85 percent to LHFA. According to LHFA, 35 buyers participated in the first five months of this program. Looking Forward Many homeowners and prospective home buyers are reticent to invest in Gulf Coast real estate. Indeed, many still have not addressed storm damage to their properties. Yet public and private partnerships continue unabated, programs continue to offer important financial assistance, and hope remains. As the planning processes in Gulf Coast municipalities are completed and their plans executed -- and as economic conditions strengthen regionally and nationally -- homeownership in the Gulf Coast should reach a new equilibrium. For more information, e-mail Kristopher Rengert, OCC, or call (202) 874-4798. Source: U.S. Government Accountability Office (GAO) presentation of Internal Revenue Service information. Map originally published in a July 2008 GAO report to the Committee on Finance, U.S. Senate, and the Committee on Ways and Means, U.S. House of Representatives. Report is titled Gulf Opportunity Zone: States Are Allocating Federal Tax Incentives to Finance Low-Income Housing and a Wide Range of Private Facilities. Original map appears on page 8 of the GAO report. Gulf Opportunity Zone Act Extends Reach of Tax Credit Programs The Gulf Opportunity Zone Act (the Act), passed by Congress in 2005, increases the resources available under three federal tax credit programs to support the rebuilding effort in the Gulf Coast region. These programs are the: Low-Income Housing Tax Credit (LIHTC), which allows developers of low-income housing to sell federal tax credits equal to a large percentage of the cost that is incurred when building the low-income units in a rental housing project. Historic Tax Credit (HTC), which provides a tax credit applied to the rehabilitation costs of historic buildings. New Markets Tax Credit (NMTC), which permits tax credits for investments in Community Development Entities serving low-income communities. The Act increases the tax credit available under LIHTC in those 2005 hurricane disaster areas, also known as "GO Zones," designated by the President to require individual and public assistance under the Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act). The Gulf Opportunity Zone Act also provides that properties placed in service during 2006-2008 in any of the hurricane disaster areas be considered to exist in a difficult development area, which increases the amount on which tax credits are calculated. The designation of any community as a difficult development area under the Act will extend through 2010. The Act authorizes the issuance of bonds to finance the construction and rehabilitation of residential and nonresidential property located in those hurricane disaster areas deemed to require assistance under the Stafford Act. Hurricane Damage to Housing   Housing Unit Damage from Hurricanes Katrina, Rita and Wilma Owner-Occupied Units Damaged State Major Damage Severe Damage or Destroyed Alabama 2,594 318 Florida 16,444 1,091 Louisiana 59,023 63,569 Mississippi 30,889 9,618 Texas 8,091 1,183 Total 117,041 75,779   Rental Units Damaged State Major Damage Severe Damage or Destroyed Alabama 642 130 Florida 5,313 351 Louisiana 39,063 43,082 Mississippi 14,887 5,992 Texas 2,432 397 Total 62,337 49,952 FEMA estimates as of February 12, 2006. There is a risk for undercounting because these data do not include vacant units or second homes or units where the owner did not register with FEMA. The definitions for different levels of damage are somewhat complicated and can be found at the link below. Generally, however, in dollar terms, minor damage indicates units with less than $5,200 in damages, major damage indicates units with between $5,200 and $30,000 in damages, and severe damage indicates units with over $30,000 in damages. Accessed on July 17, 2008 at http://www.dhs.gov/xlibrary/assets/GulfCoast_HousingDamageEstimates_021206.pdf Return to Top

OCC's Community Affairs Department (202) 874-5556 E-mail CommunityAffairs@occ.treas.gov to receive a hard copy of Community Developments. Articles by non-OCC authors represent their own views and are not necessarily the views of the OCC.