HUD draws new SBA loan guidelines

U.S. Senators Charles E. Schumer and Kirsten E. Gillibrand announced late last week that, after their push, the U.S. Department of Housing and Urban Development (HUD) will issue new guidelines providing more flexibility for Sandy-victims who turned down Small Business Administration (SBA) loans in the aftermath of Superstorm Sandy.

Many victims rejected these loans because they couldn’t afford to take on more debt, or because the terms were less generous than initially expected. HUD’s initial “duplication of benefits” policy negatively impacted these victims by requiring that Community Development Block Grant (CDBG) assistance be reduced by the amount of any approved SBA loans – whether homeowners accepted the loans or not.

CDBG funding, which comes in the form of a grant, not a loan, is intended to supplement other available resources (including insurance), and cover only “unmet need.” In determining the amount of “unmet need,” HUD regulations said that any SBA loans for which a homeowner is approved are counted against the unmet need. Schumer and Gillibrand had made the case that these regulations did not take into account the individual circumstances of homeowners who may not be able to afford to take on more debt.

“It’s good news for cash-strapped Sandy victims that HUD is revising their policy that penalizes homeowners who simply couldn’t afford to take on any more debt, and who therefore prudently declined SBA loan offers. We need to maximize the support that hammered homeowners receive and this change paves the way for that to happen. The devil is in the details and HUD should make the upcoming changes as expansive as possible,” said Schumer.

`“This is a common sense rule change so that homeowners and families devastated by Superstorm Sandy are not unfairly punished for turning down SBA loans in order to avoid falling further into debt,” said Senator Gillibrand. “It is critical that HUD issue guidelines that will allow thousands of storm victims to receive desperately needed aid.”

Under current law, “duplication of benefits” is not permitted in connection with the provision of supplemental disaster assistance such as CDBG. HUD regulations provide that CDBG disaster assistance is supplemental in nature, and designed to cover “unmet needs”, i.e., needs not otherwise covered by insurance, Federal Emergency Management Agency (FEMA) Individual Assistance or any approved SBA disaster loans. Under these HUD regulations, approved SBA loans count as a benefit that is “reasonably available” to the homeowner regardless of whether or not the homeowner actually accepts the loan, and are therefore deducted from the calculation of “unmet need”.