Among the issues Congress is to consider when it returns from summer recess next month is whether to let banks help the Small Business Administration make loans to homeowners and business owners hard hit by disasters.
At the urging of bankers, both the House and Senate recently passed legislation that would give banks a prominent role in the disaster-lending process.
The House and Senate bills are vastly different, however, and there are no guarantees they can be reconciled. Complicating matters is that Congress has a host of more pressing issues on its plate that could take priority over disaster-loan reform, observers said.
The SBA works closely with banks in making 7(a) loans, but for decades it has made disaster loans without their help. After the agency was overwhelmed by applications for aid following the Gulf Coast hurricanes of 2005, many bankers, lawmakers, and business owners began calling for the process to be sped up by getting banks more involved.
The House responded in April with a bill that would require the SBA to create a program to let banks process, approve, close, and service disaster loans for a fee equaling 2% of the loan amount. That bill was co-sponsored by Rep. Nydia M. Velazquez, a New York Democrat, and Rep. Richard H. Baker, a Louisiana Republican.
The Senate bill, passed in August, would create a program more similar to 7(a) under which banks could make disaster loans directly to homeowners or business owners, with an 85% government guarantee.
Sen. Mary L. Landrieu, a Louisiana Democrat, is a co-sponsor of the Senate bill. She said many people who applied for SBA disaster loans after the 2005 hurricanes waited up to eight months to get loans approved and another two months before receiving funds.
"One of the important lessons of Katrina and Rita is that we need the SBA to be nimble, effective, and timely in disbursing loans," Sen. Landrieu said in a statement in early August. Her bill, she said, would "greatly improve the loan process for business owners and homeowners, ensuring that essential recovery dollars quickly move into the hands of disaster victims.
"I look forward to returning to session in September and quickly reaching an agreement with the House on this vital legislation."
Bankers, too, are urging lawmakers to act promptly.
Ed Francis, the commercial banking executive for the $6 billion-asset Hancock Holding Co. in Gulfport, Miss., said banks could work with the SBA to get money to businesses affected by disasters.
The program proposed in the Senate bill "would allow us literally to be out there making loans in days," Mr. Francis said. "We have been trying to get a bill like this in place so that when the next disaster happens we can immediately help the customers."
Paul Merski, the chief economist at the Independent Community Bankers of America, said the House and Senate staffers will "have quite a bit of work to do even prior to conference" to reconcile the two bills. Still, he said he is optimistic that the chambers will work out their differences.
"It is kind of a priority issue that they are trying to wrap, given the performance of the SBA in past disasters," Mr. Merski said.
James Ballentine, the American Bankers Association's director of grassroots and community outreach, cautioned bankers not to assume that an agreement would be worked out.
Lawmakers have never before conferenced on SBA-related legislation, and the two bills are so different "there's a strong possibility that nothing could happen" on disaster-loan reform, Mr. Ballentine said.
Of course, lawmakers could be prompted to act if a hurricane or other disaster strikes, he said.
Mr. Ballentine said that bankers he has spoken with are pretty much split on whether they prefer the Senate or the House version.
One of the House bill's advantages for banks is that it would let them make and package loans for a fee but not have to worry about taking on a lot of risk lending to a business that has no collateral as a result of a disaster. (Disaster loans historically have had higher chargeoff rates than 7(a) loans.)
"The House version essentially allows for the origination processing and servicing of disaster loans similar to what a lender would do with loans you sell over to Fannie Mae," Mr. Ballentine said. "You package everything up and you would be paid a fee for it."
Guy Williams, the president and chief executive officer at the $750 million-asset Gulf Coast Bank and Trust in New Orleans, agreed that the House version would be more favorable to banks.
After a disaster strikes, bankers want to help communities rebuild as soon as possible, Mr. Williams said. He said he is concerned that banks would choose not to participate in the disaster-loan program if they had to take on 15% of the risk.
Some lawmakers might balk at the idea of paying banks a fee for processing loans, but Mr. Williams said "whatever fee they pay us, it will still be so much cheaper than hiring thousands of people with no banking experience."
After Hurricane Katrina, the SBA hired about 4,000 temporary employees to help underwrite and process loan applications. Mr. Francis agreed that banks could have handled the rush of applications more efficiently.
"You already have the infrastructure with the banks on the ground," he said. "Why does the SBA need to go hire all these folks when there are banks on the ground?"
The bills are making their way through Congress at a time when the SBA has been criticized by its own Office of the Inspector General for canceling loan contracts of victims of the 2005 hurricanes.
In a draft report in late July, the inspector general's office said the SBA canceled 7,700 loans too hastily. The SBA said it canceled the contracts only after giving the applicants about 15 months to respond to its request for additional documentation. Any borrowers whose contracts were canceled could request reinstatement through Jan. 31, the SBA said.
