Heavily criticized for its response to last year's Gulf Coast hurricanes, the Small Business Administration has added some bench strength to help get it through future disasters.
For the first time, the agency has awarded contracts to private-sector companies to assist in the processing and closing of disaster loans in an effort to get funds into borrowers' hands faster. The contracts went to three companies - none of which are banks - selected from 28 that responded to a request the SBA put out in February.
"It's a clear indication that the agency is looking to the private sector for potential partnerships to deal with these types of services," said Darryl K. Hairston, its deputy associate deputy administrator for management and administration.
Though the agency is best known for its guaranteed loan program, for decades it has made disaster loans directly to homeowners and business owners. Until now it has handled the loan processing itself, but overwhelming demand after hurricanes Katrina, Rita, and Wilma - and pressure from lenders, borrowers, and lawmakers to speed things up - forced it to reconsider that policy.
"We know the business model has to change," Mr. Hairston said.
The banking industry in particular has been clamoring for a larger role in disaster lending since Katrina swamped the Gulf Coast, arguing that banks have the personnel, infrastructure, and experience to process disaster loans quickly.
But Mr. Hairston said no banks were among the bidders.
James Ballentine, the American Bankers Association's director of grassroots and community outreach, called the agency's effort a "pilot program" and said the banking industry would prefer longer-term guarantees on their involvement in the disaster-lending process.
"The lenders are looking for a legislative solution that can put this process into law," Mr. Ballentine said.
The SBA contracts were awarded to Value Finders Appraisal Services Inc. in Culver City, Calif.; Horizon Consulting Inc. in Lansdowne, Va.; and Corvus Group Inc. in Largo, Md.
Each one-year contract guarantees 50 loan processings and 50 closings, and has options to extend the contract an additional four years. The contractors' services will be used to supplement, not replace, the work the SBA disaster-lending program does, an agency spokeswoman said.
Wanda Alexander, the president and chief executive of Horizon Consulting, said her company processes 50,000 applications a month for mortgage insurance from the Federal Housing Administration. Corvus has done contract work for the SBA, performing due diligence and analysis on disaster loans it sold to the private sector in the late 1990s and early this decade.
The bids the SBA accepted from the trio ranged from $7.2 million to $10.1 million and were based on the assumption that each company would process 7,500 loans and close the same number. It awarded the contracts in April but made no official announcement. The SBA has received 419,000 applications for hurricane-related disaster loans and made just 150,972 so far.
Mr. Hairston said the agency will evaluate the contractors' performance in the disaster-loan program before deciding whether to increase the private sector's involvement in the process. By doing so it could create an opening for banks.
"They are definitely on the table to play this game," Mr. Hairston said.
Though none of the contracts were awarded to banks, bank groups said the development helps their goal of letting private-sector banks make disaster loans in exchange for a fee from the government.
"I think that the SBA, the banks, and the people affected by the disasters have come to the conclusion that there has to be a better way to direct disaster loans, and this is a step in the direction of getting the loans out to the people that need them more efficiently," said Paul Merski, the chief economist at the Independent Community Bankers of America.
"It's also an admission that when you have disasters of this magnitude you need help," Mr. Ballentine said.
But Guy Williams, the president of the $694 million-asset Gulf Coast Bank and Trust Co. in New Orleans, said he believes the best way to improve the disaster-loan program is to let banks act as agents and give them the authority to approve loans. In his view, the SBA's efforts to get the private sector involved in disaster lending do not go far enough.
"This is nice, but it's not even close to what we need," Mr. Williams said. "The solution is simple, and it's staring them in the face. You delegate the authority to the banks like they have in the 7(a) program and the 504 program."
But Mr. Merski said that the SBA's power to delegate disaster-lending authority to banks is limited and that perhaps the only way the banking industry will be able to get the role it wants is through congressional action.
"This may be the first step towards that, but it's likely that legislation will be needed," he said.
