$846 million of Katrina aid unclaimed

updated 6:30 p.m. ET Nov. 24, 2008

NEW ORLEANS - The four-unit shotgun house that Sandra Marshall bought after decades of double shifts has sat untouched since the flooding of Hurricane Katrina, while nearly $850 million in federal aid for her and thousands of other mom-and-pop landlords sits on a bureaucratic shelf.

"I have old tenants calling me all the time asking when I'm going to get the place back up and running. I wish I knew," said Marshall, 56, who worked days as a postal clerk and nights as a housekeeping manager to buy her property.

She has applied for a repair loan from the nearly forgotten Louisiana Small Rental Property Program, created in the aftermath of Katrina to provide financial help to as many as 13,000 live-in owners of the shotgun and cottage conversions that kept rents cheap here for generations.

So far, it has put money in the hands of only 352 landlords. The hurdles have been its flawed implementation, limited financial resources among applicants, and lately, the national credit crunch. Now, the state is seeking to overhaul the program and divert the funds.

40 percent spike in rents
Housing advocates say the program's failure has contributed to a 40-percent spike in rents citywide. That has forced the federal government to pour even more Band-Aid relief into the recovery, including a $28-million-a-month Disaster Housing Assistance Program that helps 31,000 families pay the inflated rents.

"The rental market in New Orleans will never be the same," said Annie Clark, co-author of a New Orleans housing report released in August by the research group PolicyLink.

The failure of the small rental program is one reason why, three years after Katrina, many blue-collar New Orleans residents find themselves no longer able to afford life in their beloved hometown. It also illustrates how the billions of taxpayer dollars thrown at the hurricane recovery effort have yielded limited progress.

The rental program was launched under former Gov. Kathleen Blanco as a companion to the $10.3 billion Road Home program, which has issued 120,000 rebuilding grants to Gulf Coast homeowners despite its own persistent errors and bureaucratic delays.

But if the Road Home has moved glacially, the Small Rental Property Program is dead in the water.

Unlike the Road Home, which grants money up front, the rental program works on reimbursements. Landlords who own rental properties with a maximum of four units are given a "commitment letter" that states the amount of aid they qualify for, which they must take to the bank as collateral for a loan. The loans are forgivable if the landlords rent their property below market rates. But they must get the loan first, and that's the rub.

Banks lack confidence in program
Banks, lacking confidence in the program, have ignored the commitment letters. The financial crisis has magnified the problem, and now none of the 13 lenders recommended by the program use a letter as collateral.

"Basically, it's no more than a piece of paper," said Wayne Turner, of Mortgage Market Inc. in nearby Metairie, one of the 13 lenders contacted for this story.

Other lenders said many of the landlords relied on their renters as a main source of income and did not have the credit to receive a loan even before the financial downturn.

Bradley Sweazy, state supervisor of the rental program, acknowledged the problem with banks.

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