Article on State-Fed Relief Battle

Aid flap is new threat to New Orleans rebuilding
By Gina Keating

NEW ORLEANS (Reuters) - As homes in New Orleans' flood-stricken zones inch toward habitability, a bureaucratic storm is brewing between state and federal relief agencies that could derail the city's recovery from Hurricane Katrina.


The dispute over how $7.5 billion (3.8 billion pounds) in federal aid is handed out is slowing disbursal to more than 120,000 homeowners whose houses were damaged or destroyed by the storm on August 29, 2005 and by subsequent flooding.

Officials from the state of Louisiana contend that a new federal requirement that aid checks be issued jointly to homeowners and their mortgage lenders could mean that money bypasses the owners -- many of whom lost their jobs as a result of Katrina -- and goes straight to paying their defaulted mortgage payments.

A federal official said the government, in demanding a change in payout procedures, was relying on lenders to act fairly to New Orleans homeowners.

"If banks simply grab this money as a way to compensate for their subprime losses, we would not consider that the moral thing to do," said Bruce Sullivan, a spokesman for the U.S. Department of Housing and Urban Development.

But state officials note that banks are feeling a pinch all over the nation because of a crisis in subprime mortgages and many would be likely to grab the Katrina cash.

GRATEFUL

Meanwhile, Katrina victims grow older and angrier as their woes go unanswered amid endless government bickering.

Barbara Johnson, 79, has all but lost faith that the government will come through with the aid she needs to rebuild her mould-infested home on a nearly deserted block of 1940s bungalows in St. Bernard parish, so she turned to charity.

"I am so grateful for the love of these groups that come in, because the city is not doing a 'blah blah' thing," Johnson said as college kids on spring vacation ripped out water-logged debris and piled it roof-high in her front yard.

Throughout St. Bernard, the Ninth Ward and Lakeview, some of the hardest-hit neighbourhoods, temporary trailers pop up as residents return. But the city's population is only about half of what it was before the storm.

Johnson has been waiting for funds from the Federal Emergency Management Agency and the state-run, federally funded and roundly criticised Road Home program since being rescued from her attic days after Katrina hit the U.S. Gulf Coast.

The Road Home program has received more than 121,000 applications and has 60,000 still to process, and has closed on fewer than 6,100 of them. Of $7.5 billion in funding, some $4.7 billion has been allocated, but not necessarily paid out.

The standoff between state and federal officials makes it even less likely that residents like Johnson will see any money, unless banks agree not to claim the back mortgage payments.

It has also prevented the state from rolling out a new software program that was supposed to help reduce the backlog of claims.

STALLED

As state and federal officials try to resolve their differences, the state is struggling to keep money flowing and "maintain some kind of protection for the homeowners to do repairs on the property," said Natalie Wyeth, spokeswoman for the Louisiana Recovery Authority.

Wyeth said the state and HUD expect to announce this week how aid will flow to homeowners with mortgages, and what lenders are likely to deduct from grants, which average about $76,000.

The state agreed last week to pay out grants to homeowners without mortgages in lump sums and with less oversight to ensure that the funds were spent on repairs.

Most streets in once-submerged neighbourhoods remain deserted. Despite a burst of grants from the state program last month that fuelled new construction, some residents are angry at the slow recovery.

"It doesn't make sense. Everywhere we been, we build other people's (countries) but when it come to ourselves it's completely different," said Vernon Lawrence, 75, pointing to the cost of the Iraq war and reconstruction. "Here we are in this country suffering like hell."

Lawrence was speaking after coming out of the Road Home's office in East New Orleans, not far from where his two-story home flooded during the storm. He was applying for a grant and was pessimistic.

After his insurance company failed to pay out on his homeowners policy, he managed to gut his home and make it liveable with a $15,000 grant from the Federal Emergency Management Agency. He doesn't hold out much hope of getting relief from the government any time soon.

"They going to preach a good sermon but...I just wonder if they're going to deliver the things they said they're going to," he said.

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Last updated: 09-Apr-07 14:39 BST