As federal disaster aid languishes, private lenders fill the void

WASHINGTON – Private lenders will play a bigger role in disaster recovery funding under a program announced Tuesday, aimed at filling a void left by sluggish federal aid programs that take years to deliver money for victims of floods, forest fires and other disasters.

The program, funded in part by financial giant Morgan Stanley, will pay apartment building owners to rebuild faster, so they don’t have to wait for federal funds. Those loans would be repaid by taxpayers – including interest paid to Morgan Stanley, which concerns some climate and disaster experts.

“It’s really important to explore new ways to speed up support times,” said Miyuki Hino, professor at the University of North Carolina at Chapel Hill, who focuses on managing the effects of climate change. . “But this arrangement poses new challenges.”

The program reflects the government’s struggle to cope with the frequency and intensity of disasters as climate change worsens. Victims often wait years for help to return home because the money for reparations is advancing so slowly. The longest to wait are often renters, who are more likely than owners to be people of color or to have low incomes.

“Disaster recovery is not fair in this country,” said Priscilla Almodovar, president and CEO of Enterprise Community Partners, a Washington-based nonprofit. “Tenants are the hardest hit.

To shorten that wait, Enterprise and Morgan Stanley have said they will begin loaning money to owners of multi-family rental properties to repair damage to these complexes, which will speed up the return of tenants to their homes.

Loans must be repaid with interest using disaster money from the US Department of Housing and Urban Development. The department provides the bulk of federal disaster recovery money through its community development disaster recovery program.

Morgan Stanley declined an interview request. Joan Tally, general manager of community development finance at Morgan Stanley, said in a statement that the program “will accelerate the flow of capital for affordable rental housing in communities affected by natural disasters.”

On average, it takes 20 months after a disaster before HUD housing assistance programs start distributing money, according to research by the Urban Institute. And these programs were often still distributing money two years later.

The delay in distributing the money reflects the ad hoc nature of HUD disaster recovery expenses. Congress never gave the department permission to establish a permanent program for disasters. Instead, lawmakers must decide after each disaster whether to donate money to the HUD to help victims.

As a result, the delay between a disaster and HUD funding Congress for Congress can be months or years. The agency then has to spend months creating a program to distribute the money to states, which in turn decide how to distribute it to local governments.

The latest disaster money round approved by Congress demonstrates this delay. The legislation, which President Biden signed on September 30, provides funds to help people in 10 states recovering from hurricanes and other disasters in 2020, most of which happened more than a year ago.

HUD officials declined to discuss the matter formally. The agency made available a senior official who spoke on condition that he was not identified. He said the HUD could reduce the time it takes to deliver disaster money by up to 90% if Congress makes the disaster recovery program permanent.

Lawmakers have presented bills that would make those changes. But these bills have not yet been passed. Ms Almodovar, director of Enterprise, said her group also pushed Congress to make the change.

Enterprise declined to say how much interest it would charge on its loans, saying only that it would be “in the middle of the numbers.” Ms Almodovar said the rates should reflect the fact that loans are not backed by collateral.

She said funding disaster loans through the private market provides access to a significant source of money, allowing the program to expand, which is starting in Louisiana, Oregon and Iowa.

With no fixes to the disaster recovery program, climate experts said the new loan deal from Enterprise and Morgan Stanley was helpful. This program “responds to a real need,” said Liz Koslov, professor in the planning department at the University of California at Los Angeles. But she said it was problematic nonetheless, being part of a larger trend of private companies profiting from disasters.

Carlos Martín, a member of the Brookings Institution who has studied the effects of federal disaster programs, said the mistreatment of tenants worried him more than companies making money from these events. He said the new program is likely to help tenants get home faster.

“We are neglecting rental communities,” said Dr Martín. “Our federal disaster relief response is focused on property, not people. “

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