In this week's WAVE: SBA Loan no longer precludes CDBG funding approval

Homeowner Break

SBA Loan Won’t Stop Grant Chance

By Kevin Boyle

Homeowners who turned down loan offers from the Small Business Administration (SBA) after Sandy may now be able to get grant money to meet “unmet needs” as they go about repairing their homes. This represents a shift in policy by the Department of Housing and Urban Development (HUD).

In a letter to Senator Kirsten Gillibrand, HUD said the agency will “not require applicants who have applied for and been offered SBA assistance to accept the SBA assistance as a prerequisite” to receiving grant money from the Community Development Block Grant (CDBG).

In May, New York City received $1.77 billion dollars from HUD in the form of the CDBG which is funded by Sandy relief aid. A good portion of those funds — more than $600 million dollars — was earmarked for housing recovery efforts in Sandy-impacted areas.

Soon after getting the $1.7 billion, the City launched the “Build It Back” program as a way to get funds to homeowners. However, as Wave readers learned, there was a considerable fly in the ointment. Soon after Sandy, homeowners were told by FEMA and others to apply for SBA loans as a way to help cover costs that were not covered by FEMA or insurance. At the same time, SBA touted its low interest rate loans as a way to lure homeowners. The SBA was offering loans for 1.68 percent, far better than loans offered on the open market. Many people followed FEMA’s directive. They gathered heaps of required documents and applied for the SBA loan.

It wasn’t long before homeowners found out that only a small number of applicants were eligible for the 1.6 percent loan. Many were offered loans no better than their own banks or other lenders were offering. As a result, many rejected the SBA loans. Others were approved but decided to forego the loan simply because they did not wish to assume more debt.

The consequences of turning down the SBA money were not known until talk of grant money and the CDBG first came to light. It was revealed that grant money was being used to cover “unmet needs” (the cost of repair not covered by insurance, FEMA, or SBA loans). It was in the calculating of unmet needs where controversy burst forth.

To illustrate, if a homeowner, had $75,000 worth of damage and had received $30,000 from FEMA and nothing more, that homeowner could be eligible for $45,000 in grant money. However, another homeowner with the same amount of damage who had been approved for—- but turned down the SBA loan—-was in for a surprise. The amount of loan offered – not accepted, offered – was being counted to determine remaining “unmet needs.” So, if the homeowner had $75,000 in damage and FEMA had given that homeowner $30,000 and SBA had offered $45,000 – and even though the loan offer was rejected – the loan offer was considered on the books and there would be no unmet needs. That homeowner would not be eligible for a grant.

Some homeowners were being “penalized for good behavior” as Brad Gair of the Housing Recovery office said.

After public outcry, Gillibrand, Senator Charles Schumer and City officials made efforts to persuade HUD to rework its guidelines. Those efforts appear to have paid off.

In the letter to Gillibrand, HUD said the City may use “multiple approaches” and “vary the approach” in figuring out “necessary recovery costs for individuals and businesses.” This new guideline seems to empower or at least give greater flexibility to case workers as they determine unmet needs. By removing the SBA hurdle, HUD allows the City’s “Recovery Specialists” to award grant money more freely.

HUD requires the City to determine why an applicant declined SBA assistance and “cautions against providing 100 percent grant assistance where an applicant has declined SBA assistance without fully documenting the basis for that level of subsidy.”

In other words, HUD wants to know the reason an SBA loan was rejected but (at this point) is not drawing a distinction between reasons offered. So, HUD wants documentation but is not differentiating between someone who turned down the SBA because of high interest rates or someone who did not want the burden of additional debt.

Whether the SBA factors in or not, the path to receiving grant money is likely to be different for each individual homeowner. The City, through its Build It Back program, is hiring “Recovery Specialists” who will be assigned to homeowners who register for assistance. The City seeks to employ four “pathways” for homeowners: repair, rebuild, reimbursement and buyout/acquisition. These options will be addressed by the Recovery Specialists when they consult with individual homeowners. Some Rockaway homeowners who registered for Build It Back have already met and are consulting with their Recovery Specialists to determine needs and eligibility.

Homeowners can register for the Build It Back program by calling 311 or going to the Housing Recovery website at NYC.gov/html/recovery

Tax returns, receipts, and proof of funds already received (insurance, FEMA) are among the documents homeowners will be expected to provide.