Bush Administration Shuns Proposed Katrina Agency
The Bush administration will not support the creation of a new government corporation to finance and oversee the reconstruction of New Orleans and other parts of Louisiana hit hard by Hurricane Katrina.
The decision came as a major blow to Rep. Richard Baker, R-La., who pushed his bill to create a Louisiana Recovery Corp. through the House Financial Services Committee in December.
It also is a blow to lenders who expected to get some relief from the Baker plan, which is designed to prevent a wave of defaults and foreclosures. However, the Louisiana congressman pledged to continue to fight for the bill until the White House comes up with a better way to deal with the devastation Katrina caused in his state.
"While I respectfully disagree with their decision, we owe it to Louisiana to push forward," Rep. Baker said last week.
As an alterative, the Bush administration said last week that $11.5 billion in Community Development Block Grant funds is available to help homeowners rebuild their homes in the Gulf Coast states.
"It is critically important to focus on those homeowners who lived outside the flood plain who did not have flood insurance," said Donald Powell, the president's coordinator for Gulf Coast rebuilding. Louisiana is slated to receive $6.21 billion in CDBG funds and Mississippi $5.06 billion.
White House officials objected to the Baker bill (H.R. 4100) because it would create another federal agency with the power to issue tens of billions of dollars of U.S. guaranteed bonds.
Mr. Powell noted the CDBG approach is superior because it "does not create another level of bureaucracy. Also it does not put the government in the real estate business."
Under Rep. Baker's proposal, the Louisiana Recovery Corp. could purchase properties from "willing" homeowners and assume their mortgages to facilitate redevelopment by private contractors.
Rep. Baker designed the LRC program to give homeowners whose properties have been severely damaged or destroyed a chance to return to New Orleans. It would also provide a lifeline for banks and other lenders who might otherwise buckle under the losses.
Many industry groups, such as the American Bankers Association and Mortgage Bankers Association, support the LRC concept because it recognizes lenders cannot offer forbearance on mortgage payments forever.
"We continue to support Mr. Baker's efforts," said ABA senior counsel Joe Pigg. "We want to work with the administration, Rep. Baker and the whole Louisiana delegation to address the problems there."
President Bush is expected to discuss the cleanup and recovery effort in the Gulf Coast states in his State of the Union address this week. "We're anxious to see what the president will propose," said MBA senior vice president Kurt Pfotenhauer.
The MBA executive noted that lenders are concerned "we may see an increase in abandonment and foreclosures in the Gulf region."
Meanwhile, Sen. Mary Landrieu, D-La., has introduced the Baker bill in the Senate and Senate Banking Committee chairman Richard Shelby, R-Ala., intends to hold a hearing on the Louisiana Recovery Corp. bill in the next few weeks.
"Congressman Baker has put together an excellent bill," Sen. Landrieu said. "The White House opposition to the Louisiana Recovery Corp. demonstrates a continued lack of understanding for the magnitude of the devastation and the immense rebuilding task our state faces.
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