After the Storm
Banks Respond to Katrina’s Punch

By Dena Owens
Community Affairs Specialist
Federal Reserve Bank of St. Louis

One of many homes destroyed by Hurricane Katrina. (Photo by Wayne Smith)

Of all the problems facing victims of Hurricane Katrina, finances are among the most serious, close behind physical and emotional well-being. As individuals try to recover from the storm’s devastating blow, financial institutions have been scrambling to help customers regain their financial standing. Banks and other lenders find themselves in unusual circumstances, requiring a new way of thinking.

Resourceful banks have designed creative ways to resume business, incorporating “flexibility” and “customization” into their vocabulary, engaging
in recovery area investment projects and forming alliances with community partners. Examples of innovative programs abound.

Customized Programs for Special Customers

Just before Hurricane Katrina struck, one credit union erected a new branch in New Orleans. The branch was destroyed yet was committed to offering hope to its customers. Sponsored by Enterprise Corporation of the Delta based in Jackson, Miss., Hope Credit Union lost its new location, but continues serving evacuees through flexible banking options.

Determining their customers’ needs, acquiring funds and developing customized options were Hope’s more pressing challenges, says Richard Campbell, chief financial officer. Hope interviewed victims to identify needs, looked to their socially responsible investors (financial institutions, community and faith-based groups, and individuals) for funding and then tailored options to fit the needs.

Through these actions, Hope developed an array of loan options and services. Loan options include a six-month, interest-free housing recovery loan that can be extended for 12 or 24 months with low interest; a 90-day, interest-free consumer loan; a low-interest auto loan with no payments for 60 days; and loans adapted for small business recovery and other needs. Services include opening no-fee checking accounts for one year. For details, see www.hopecu.org.

In Memphis, the Bank of Bartlett is helping hurricane victims buy homes in the area through the New Neighbors Homeownership program. So far, 36 evacuees have been approved for mortgages, 10 have closed or are in the process of closing and the remainder are looking for homes.

The mortgage program, initiated by Federal Home Loan Bank of Cincinnati, provides up to a $20,000 down-payment grant to victims who want to purchase homes in Tennessee, Kentucky or Ohio on a first-come, first-served basis. Storm victims must be registered with the Federal Emergency Management Agency (FEMA). They are required to keep homes they purchase for five years. House values can be up to $175,000.

The Memphis and Shelby County Community Services Agency, an organization working with partners to provide services for families, ran information about the program through Bank of Bartlett in a recent newsletter. In the first few days after the newsletter was distributed, more than 100 people inquired about the program.

The initiative also is offered in Memphis through the Memphis Area Teachers Credit Union.

To review the program, visit the Federal Home Loan Bank of Cincinnati's web site, www.fhlbcin.com.

Partnerships with Nonprofits

Banks in Arkansas, Mississippi and Tennessee were challenged to assist the tens of thousands who fled into these nearby areas for refuge. In response, joint ventures have formed on both corporate and local levels to expand access to aid. The alliances have generated monetary donations, housing stock, supplies, food and water. Such partnering lessens the amount of government funding needed and may qualify for Community Reinvestment Act consideration during bank examinations.

FEMA estimates 30,000 to 50,000 evacuees fled into Arkansas, and banks with Arkansas branches responded.

For example, Regions Bank, with about 1,600 locations in its multistate footprint—including many in the disaster area and in Arkansas—opened an account to collect donations at all branches. Regions partnered with the American Red Cross and the Salvation Army to distribute aid to evacuees, who included bank associates. The bank also formed local partnerships such as in Little Rock, where Regions’ banks donated $10,000 to the Water Shed Human Development Agency. The nonprofit entity helped Little Rock evacuees get back on their feet. On a corporate level, the bank is considering a partnership investment with three agencies that propose building thousands of affordable housing units across the Gulf area.

In Mississippi, FEMA estimates there are more than 200,000 remaining evacuees in its metropolitan areas and an undetermined number in rural areas. BankPlus, a state bank with 56 branches throughout Mississippi, was directly impacted by the hurricane and partnered with the Central Mississippi Chapter of the American Red Cross to ensure that funds directly aided Mississippi residents.

“Our goal was to help displaced Mississippians,” says David Dumeyer, spokesman for BankPlus. The bank accepted donations at all branches and matched $250,000 of the total collected. About $800,000 has been collected, and the bank expects that figure to rise through its continued efforts to raise funds.

Memphis is among the top five cities in the number of evacuees it received. An estimated 15,000 to 18,000 remain, according to the Louisiana Recovery Authority. SunTrust Bank, with more than 1,600 branches nationally, including about 40 in Memphis, has no locations on the Gulf Coast. Nevertheless, it delivered a corporate plan to aid Katrina victims. The plan included local projects: SunTrust’s Memphis banks partnered with the Memphis Chamber Foundation. SunTrust donated $50,000 for the foundation’s efforts to help local churches and charitable agencies that requested assistance for victims.

Challenges to Lenders, Customers

Federal financial regulating agencies are encouraging banks, thrifts and credit unions to continue providing flexible options to customers affected by Hurricane Katrina. At the same time, regulators stress balancing investments and flexible options with sound measures.

In cities with high concentrations of evacuees, such as Baton Rouge, Little Rock and Memphis, lenders have attended workshops conducted by the Federal Deposit Insurance Corp. (FDIC) to discuss their concerns and possible solutions to problems they have encountered. Ideas that lenders would like to see implemented include:

• development of loan pools to minimize risks and increase loan capacity at smaller banks;
• definitions by regulators of forbearance vs. forgiveness and descriptions of acceptable forms of identification for accessing or opening accounts;
• coordinated disaster scenario exercises involving key agencies;
• development of a disaster area investment projects list;
• development of an alternative funding resources list, including national and regional intermediaries, such as NeighborWorks America, the Local Initiatives Support Corp. and Enterprise Community Partners;
• development of land trusts to preserve affordable housing options and land banking opportunities so developers can hold land for future development;
• acquisition of flood maps from FEMA when local planning offices are inoperable and of building codes from city or county web sites, if available, as codes are updated for underwriting requirements;
• utilization by lenders of the new SBA Gulf Opportunity Pilot Loan program, “Go Loans,” which offers a streamlined loan process for evacuees seeking small business recovery (www.sba.gov/financing/goloans);
• a list of Katrina-related web sites with updated resources and information.

For a list of Katrina information and resource web sites, click here.

Disasters Put Poverty in Spotlight Following hurricanes Katrina and Rita, several hundred thousand people were displaced from their Gulf Coast homes. Never have we seen the large-scale problems caused by these natural disasters. Many evacuees were relocated to the St. Louis Fed’s District—most notably, to Arkansas and parts of Tennessee and Mississippi. Many governmental agencies and private businesses are working with community organizations to provide jobs, housing, education and financial assistance to help the evacuees rebuild their lives. However, the news coverage of the aftermath from New Orleans forced the nation to look at the disparate effect the flooding had overwhelmingly on low-income and minority individuals and families. As the Metropolitan Policy Program of The Brookings Institution reported in its October 2005 study, Katrina’s Window: Confronting Concentrated Poverty Across America, areas of concentrated poverty are not confined to New Orleans. “Despite improvements in the 1990s, nearly every major American city still contains a collection of extremely poor, racially segregated neighborhoods.” Of particular significance for our District is that out of the 50 largest cities in the country, Louisville and Memphis rank among the highest with percentages of populations living in extreme-poverty neighborhoods—census tracts in which at least 40 percent of the population lives in families with incomes below the federal poverty threshold. Louisville ranked third and Memphis 12th, according to Appendix A in the study. Authors of The Brookings Institution study, Alan Berube and Bruce Katz, contend that “the impacts of concentrated poverty go far beyond those relevant in the context of a natural disaster.” Berube and Katz suggest that the way forward is to create neighborhoods of choice and connection. “Neighborhoods of choice are communities in which people of lower incomes can find a place to start, and as their incomes rise, a place to stay. They are also communities to which people of higher incomes can move, for their amenities, location and housing value. Neighborhoods of connection link families to opportunity, wherever it may be located. They offer connections to good schools, and recognize that the shifting geography of employment demands improved mobility for workers to access good jobs.” Several policy options were recommended by the authors “to put the nation back on track toward alleviating concentrated poverty, by supporting choice and opportunity for lower-income residents in distressed neighborhoods. Options include: restoring funding to the HOPE VI program; increasing support for housing vouchers; piloting a ‘housing-to-school’ voucher initiative; adopting President Bush’s proposed home ownership tax credit; targeting affordable housing to low-poverty areas with the assistance of regional housing corporations; and expanding the EITC to help working families afford housing in better neighborhoods.” To read the complete report, go to www.brookings.edu/metro/pubs/20051012_concentratedpoverty.pdf. —By Glenda Wilson Community Affairs Officer Federal Reserve Bank of St. Louis

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