The Role of HUD Housing Programs in Response to Hurricane Katrina

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The catastrophic devastation wrought by Hurricane Katrina in late August 2005, and to a lesser
degree, Hurricanes Wilma and Rita, led to the displacement of hundreds of thousands of families.
Following the storm, the Federal Emergency Management Agency (FEMA) took primary
responsibility for meeting the emergency housing needs of displaced families. The Department of
Housing and Urban Development (HUD), the nation’s housing agency, also played a role. HUD
modified its existing grant programs—primarily through waivers—to make them more flexible
for communities wishing to serve displaced families. The Department also took steps to aid
displaced families that had been homeless or receiving HUD assistance prior to the storm by
developing a new voucher program, and by issuing guidance to lenders offering protections for
homeowners with FHA-insured mortgages. Finally, Congress has used the Community
Development Block Grant (CDBG) program as a conduit for providing flexible relief and
recovery funds to devastated communities. This report details HUD’s efforts to provide assistance
to affected families and communities immediately after the storm and in the initial rebuilding
stages. It will not track HUD’s role in the longer-term rebuilding of the devastated areas.

As in past disasters, the Secretary of HUD issued a number of waivers to permit local
communities to redirect their existing HUD housing and community development grant funds to ¹
meet their emergency needs shortly after the storm. Waivers were issued for the Community ²
Development Block Grant (CDBG) program, the HOME Investments Partnerships Program
(HOME), the Emergency Shelter Grants Program (ESG), and the Housing for Persons with AIDS
Program (HOPWA). Waivers issued ranged from extensions in the amount of time grantees had to
spend their funds to easing of benefit eligibility requirements. HUD also issued $2 million in
“Imminent Threat” funding to Indian Community Development Block Grant recipient ³
communities affected by the storm.

The Administration took a number of first steps to make existing housing programs and assistance
available to victims of Katrina. Immediately after the storm, HUD established a toll-free number
for HUD-assisted families who had been displaced—such as public housing residents and Section
8 rental housing voucher holders—to call in order to reestablish their benefits. In conjunction
with that number, the Department identified a number of vacant units across the country in which
to house displaced tenants, both formerly assisted and unassisted. HUD also issued a notice
summarizing waivers available to public housing authorities (PHAs), including suspensions of
reporting deadlines, loosening of quality standards and income determination rules, and increases ⁴
in subsidy limits for public housing authorities affected by the storm. The Department also made ⁵
emergency capital reserve funds available to local PHAs to repair damaged public housing units.
FEMA-HUD Joint Initiative .⁶ On September 24, 2005, the Secretaries of HUD and Homeland
Security announced a joint transitional housing assistance initiative for Hurricane Katrina ⁷
evacuees. The initiative was to provide two types of assistance, both funded by emergency funds
provided to FEMA in a supplemental appropriation shortly after the storm. The first was a type of
individual and household grant administered by FEMA. Displaced homeowners and renters
(except for HUD-assisted renters) were to receive a cash grant of $2,358 to be used for housing-
related expenses. The amount was meant to represent three months of housing costs and was

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calculated using the national average fair-market rent (FMR) for a two-bedroom apartment. The
assistance could be extended for up to 18 months.
Second, for families who were homeless or receiving HUD assistance before the storm, FEMA
initially provided funding to HUD, through a mission assignment, to administer the HUD Katrina
Disaster Housing Assistance Program (KDHAP). It provided ongoing rental assistance, for up to
18 months, to displaced HUD-assisted renters (including Section 8 voucher holders, families who
had lived in public housing, and families who had lived in other forms of HUD-assisted rental ⁸
housing) and displaced homeless families. It was administered by local PHAs and was calculated
at 100% of the local area FMR. Families were required to pay any difference between the rental
assistance amount and the actual rent for the unit they selected. This program had no income
eligibility or targeting requirements, and families’ eligibility was determined after they registered
for FEMA assistance and contacted HUD. Language included in the FY2006 Defense
Appropriations Act (P.L. 109-148) transferred $390 million in FEMA funds to HUD to administer
a modified form of KDHAP called the Disaster Voucher Program. The act also included
administrative provisions permitting housing authorities to combine their public housing and
Section 8 voucher funds, and directing the Secretary, to the extent feasible, to preserve all assisted
housing damaged by the storm.

On August 31, 2005, HUD issued mortgage letter 2005-33,⁹ reminding HUD-approved lenders
that when the President declares a disaster, as in the case of Hurricane Katrina, it automatically
triggers certain procedures with regard to FHA-insured mortgages in the affected areas. The
following procedures become effective for one year from the date of declaration: (1) a ¹⁰
moratorium on foreclosures for 90 days from the date of declaration; (2) lenders are encouraged
to offer special forbearance, mortgage modification, refinancing, and waiver of late charges to
affected borrowers; (3) families whose residences were destroyed or severely damaged are
eligible for 100% financing under the Section 203(h) program for the cost of reconstruction or
replacement; (4) damaged properties become eligible for Section 203(k) financing, under which
costs to purchase and rehabilitate the property are included in one loan and HUD waives the
requirement that the property has been completed for more than one year prior to application for
the mortgage; (5) underwriting guidelines are relaxed to permit disaster victims to qualify for
loans even if their total monthly debt, including the proposed mortgage, would equal 45% of
gross income; and (6) lenders must ensure that hazard claims are expeditiously filed and settled,
and lenders may not retain hazard insurance proceeds to make up an existing arrearage without
written consent of the borrower.
The Section 203(h) program is available for borrowers who already own homes in the affected
area. The loans are limited to the FHA loan limit for the area, subject to the provision that the

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loan may not exceed 100% of the appraised value of the property. In some cases it may not be
possible to obtain 100% financing. It may often be the case that the cost to repair or replace the
property exceeds the appraised value of the property. This is the reason that most lenders require
borrowers to obtain hazard insurance that covers the replacement cost of the property instead of
its appraised value. The Section 203(k) program permits borrowers who do not already own
homes to purchase and rehabilitate properties in the area that are either abandoned by owners, or
are being sold by owners who do not want to repair them and remain in the area. The current FHA
underwriting guidelines provide that a prospective borrower’s total debt, including the proposed
mortgage payment, may not exceed 41% of the borrower’s gross monthly income. In recognition
of the fact that borrowers in these programs [Section 203 (h) and (k)] may have to incur debt to
replace personal property, the underwriting guidelines are relaxed to permit loans to borrowers
whose total debt is up to 45% of gross monthly income. The limit may even be exceeded if
justified by compensating factors.
On December 5, 2005, HUD announced the Mortgage Assistance Initiative (MAI), under which
HUD will make mortgage payments for up to 12 months on behalf of borrowers who have FHA-
insured mortgages on their homes and who have been displaced or are unemployed because of the
recent disasters. Eligible borrowers must: (1) have homes that are repairable and are located
within parts of Alabama, Florida, Louisiana, Mississippi, or Texas declared eligible for individual
assistance as a result of Hurricanes Katrina, Rita, or Wilma; (2) have missed between four and 12
payments on an FHA-insured home loan; (3) be temporarily unable to make mortgage payments
but have the expectation to resume full mortgage payments; and (4) the homes must be the
primary residences of the borrowers and the borrowers must be committed to continued
occupancy of the properties as primary residences. No interest is charged on the MAI loans, and
repayment is not required until the original FHA-insured loans are repaid. The program is ¹¹
scheduled to expire18 months after it began, and is expected to assist about 20,000 families. ¹²
FHA notes that more than 52,000 FHA-insured loans were delinquent due to the storms.
In April 2005, before Hurricane Katrina struck, HUD augmented its existing 203(k) program by
announcing the “Streamline(k) Limited Repair Program” to facilitate the purchase of properties
needing minor rehabilitation (HUD Mortgagee Letter 2005-19). Eligible properties were those
needing repairs costing at least $5,000 but not more than $15,000. The program was amended in
December to, among other changes, eliminate the minimum repair cost, increase the maximum
repair cost to $35,000, and make lead-based paint stabilization an eligible work item (HUD
Mortgagee Letter 2005-50). The Streamline(k) program is not directed specifically at properties
damaged by Katrina, but could facilitate the purchase and repair of such properties that meet
program requirements.

Congress enacted several emergency supplemental funding bills following the hurricanes, two of ¹³
which provided CDBG funds to affected communities. The Defense Appropriations Act for

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FY2006 (P.L. 109-148) provided $11.5 billion for CDBG for “necessary expenses related to
disaster relief, long-term recovery, and restoration of infrastructure in the most impacted and
distressed areas” in the five states impacted by Hurricanes Katrina, Rita, and Wilma. The act
allowed
• the affected states to use up to 5% for administrative costs;
• HUD to grant waivers of program requirements (except those relating to fair
housing, nondiscrimination, labor standards, and the environment);
• Mississippi and Louisiana, the most affected states, to use up to $20 million for
local community development corporations; and
• the Governor of each state to designate multiple entities to administer a portion,
or all of a state’s share of the $11.5 billion.
The act also lowered the income targeting requirement for activities benefitting low- and
moderate-income persons from 70% to 50% of the state’s allocation; limited the maximum
amount of assistance any of the five states may receive to no more than 54% of the total amount
appropriated; and required each state to develop, for HUD’s approval, a plan detailing the
proposed use of funds, including eligibility criteria and how the funds will be used to address
long-term recovery and infrastructure restoration activities. On January 25, 2006, HUD
announced its allocation of the funds. Using data from FEMA and several other agencies, HUD
calculated the extent of each state’s unmet housing needs and areas of concentrated distress for ¹⁴
each of the five states. HUD allocated 55% of the funds based on each state’s unmet housing
needs and the remaining 45% on the degree of concentrated distress as measured by each state’s
share of damaged and destroyed housing stock, and business and infrastructure damage.
On February 13, 2006, HUD published a notice of allocations, waivers, and alternative
requirements governing the CDBG disaster recovery assistance. In addition to providing waivers
allowing the states to allocate funds to CDBG entitlement communities and directly administer
the program, the notice also included language stating that “Funds allocated are intended by HUD ¹⁵
to be used toward meeting unmet housing needs in areas of concentrated distress.” The language
included in the act did not restrict the use of these funds to unmet housing needs. Rather, the act
provided some level of flexibility allowing funds to be used for long term recovery and
infrastructure restoration in the areas most affected by the Gulf Coast Hurricanes of 2005.
On June 15, 2006, the President signed P.L. 109-234, a second emergency supplemental
appropriations act, providing funds for Gulf Coast recovery efforts. The law included $5.2 billion
in additional CDBG assistance for the states of Alabama, Florida, Louisiana, Mississippi, and
Texas. It limited the amount that any one state could receive to $4.2 billion, and encouraged states
to target assistance to infrastructure reconstruction and activities that would spur the
redevelopment of affordable rental housing, including federally assisted housing and public
housing. The law contained provisions regarding the use and administration of funds, including

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most of the provisions that applied to the funds authorized by P.L. 109-148, as well as provisions
that
• required that at least $1 billion of the CDBG amount be used for repair and
reconstruction of affordable rental housing in the impacted areas;
• ensured that each state’s plan gives priority to activities that support
infrastructure development and affordable rental housing activities;
• required each state to file quarterly reports with House and Senate Appropriations
Committees detailing the use of funds;
• required HUD to file quarterly reports with the House and Senate Appropriations
Committees identifying actions by the Department to prevent fraud and abuse,
including the duplication of benefits; and
• prohibited the use of CDBG funds to meet matching fund requirements of other
federal programs.
On July 11, 2006, HUD announced that $4.2 billion of the $5.2 billion supplemental
appropriation for CDBG would be allocated to Louisiana, and on August 18, it announced how
funds would be distributed to the remaining states (see Table 1). HUD determined the distribution
of funds for Alabama, Florida, Mississippi, and Texas based on unmet need, analyzing data from
FEMA and the Small Business Administration. It then invited each state to provide their own data
on remaining recovery needs in order to make its decision.
Table 1. Allocation of CDBG Disaster Relief Assistance
^State^{P.L. 1}^09-1⁴⁸^{P.L. 1}^09-2³⁴^Total
^{Alabama $74,3}^88,0⁰⁰^$21,2^25,5⁷⁴^$95,6^13,5⁷⁴
^{Florida 82,9}^04,0⁰⁰^100,⁰⁶^6,51⁸^182,⁹⁷^0,51⁸
^{Louisiana 6,21}^0,00^0,00⁰^4,20^0,00^0,00⁰^10,4^10,0^00,0⁰⁰
^{Mississippi 5,05}^8,18^5,00⁰^423,⁰³^6,05⁹^5,48^1,22^1,05⁹
^{Texas 74,5}^23,0⁰⁰^428,⁶⁷^1,84⁹^503,¹⁹^4,84⁹
^Total^11,5⁰⁰^,00^0,0^{00 5,17}^3,⁰⁰⁰^,00⁰^16,6⁷³^,00^0,0⁰⁰
^Source:^{HUD new}^{s releases, J}^{uly 11,}²⁰^{06: htt}^{p://www.hud.gov/news/release.cfm?content}^=pr^06-⁰^{79.cfm, and}
^August^{18, 2}⁰⁰^{6: htt}^{p://www.hud.gov/news/release.cfm?conte}^nt=p^r^06-0^99.cfm^{and Federal Register,}^Allocation
^{and Common Application and Rep}^o^{rting Waivers Gra}^{nted to and Altern}^{ative Requirements for CDBG Disaster Recovery}
^{Grantees Under the Department of Defense Appropriations Act, 2006}^{, Feb. 13, 2}⁰⁰^{6, vol. 71, no. 29, p.}⁷⁶⁶^6.

Two important developments related to HUD’s role in response to the 2005 hurricanes occurred
after the initial response period that is the focus of this report. First, in July 2007, FEMA
announced it would transfer responsibility for ongoing housing assistance for families displaced
by the 2005 hurricanes to HUD, noting HUD’s expertise in assisting families with long-term
housing needs through its existing infrastructure of PHAs. Second, in November 2007, Congress
provided another $3 billion in emergency supplemental CDBG funding to Louisiana for its
recovery needs (P.L. 110-116).

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