As Federal Disaster Aid Languishes, Private Lenders Are Filling the Gap

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WASHINGTON — Private lenders will play a greater role in funding disaster recovery under a program announced Tuesday, moving to fill a gap left by sluggish federal aid programs that take years to get money to victims of floods, wildfires and other catastrophes.

The program, funded in part by the financial giant Morgan Stanley, will pay owners of apartment buildings to rebuild more quickly, so they don’t have to wait for federal funds. Those loans would be repaid by taxpayers — including interest paid to Morgan Stanley, which concerns some climate and disaster experts.

“It’s definitely important to explore new ways of speeding up assistance timelines,” said Miyuki Hino, a professor at the University of North Carolina at Chapel Hill who focuses on managing the effects of climate change. “But this arrangement poses some new challenges.”

The program reflects the government’s struggle to keep up with the frequency and intensity of disasters as climate change worsens. Victims often wait years for help to get back into their homes because money for repairs moves so slowly. The longest to wait are often renters, who are more likely than homeowners to be people of color or to have low incomes.

“Disaster recovery is not equitable in this country,” said Priscilla Almodovar, president and chief executive officer of Enterprise Community Partners, a Washington-based housing nonprofit. “Renters are the hardest hit.”

To shorten that wait, Enterprise and Morgan Stanley said they will begin loaning money to owners of multifamily rental buildings to repair the damage to those complexes, making it quicker for renters to move back home.

The loans are to be paid back with interest using disaster money from the U.S. Department of Housing and Urban Development. The department provides the bulk of federal disaster recovery money through its Community Development Block Grant Disaster Recovery program.

Morgan Stanley declined an interview request. Joan Tally, managing director for community development finance at Morgan Stanley, said in a statement that the program would “accelerate the flow of capital for affordable rental housing in communities impacted by natural disasters.”

On average, it takes 20 months after a disaster before HUD’s housing assistance programs begin distributing money, according to research by the Urban Institute. And those programs were often still distributing money two years after that.

The delay in distributing the money reflects the ad hoc nature of HUD’s disaster recovery spending. Congress has never given the department permission to establish a permanent program for disasters. Instead, lawmakers must decide after every disaster whether to give HUD money to help victims.

As a result, the delay between a disaster and Congress providing funding for recovery through HUD can last months or years. The agency must then spend months creating a program to distribute the money to states, which in turn decide how to distribute it to local governments.

The latest round of disaster money approved by Congress demonstrates that delay. The legislation, which President Biden signed on Sept. 30, provides funds to help people in 10 states recover from hurricanes and other disasters in 2020, most of which occurred more than a year ago.

HUD officials declined to discuss the matter on the record. The agency made available a senior official who spoke on the condition that he not be identified. He said HUD could reduce the time it takes to provide disaster money by as much as 90 percent if Congress made the disaster-recovery program permanent.

Lawmakers have introduced bills that would make those changes. But those bills have yet to pass. Ms. Almodovar, the head of Enterprise, said her group has also pushed Congress to make that change.

Enterprise declined to say how much it would charge in interest for its loans, saying only that it would be in the “mid-single digits.” Ms. Almodovar said the rates must reflect the fact that the loans are not backed up by collateral.

She said that funding disaster loans through the private market provides access to a deep source of money, making it possible to expand the program, which is starting in Louisiana, Oregon and Iowa.

In the absence of fixes to the disaster recovery program, climate experts said the new lending arrangement from Enterprise and Morgan Stanley was useful. That program “responds to a real need,” said Liz Koslov, a professor in the urban planning department at the University of California, Los Angeles. But she said it was nonetheless problematic, part of a broader trend of private companies that profit from disasters.

Carlos Martin, a fellow at the Brookings Institution who has researched the effect of federal disaster programs, said the poor treatment of renters concerned him more than companies making money from those events. He said the new program is likely to help renters move back home faster.

“We’re neglecting rental communities,” Dr. Martin said. “Our federal disaster relief response focuses on property and not people.”

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