After months of prompting from Gulf Coast bankers and industry trade groups - and with an apparent push from the White House - the Small Business Administration has agreed to let banks and other lenders help it process disaster loan applications.
The SBA is expected to put out a request for proposal today, and a spokesman said it would award contracts through a competitive bidding process. By enlisting financial institutions to help it process tens of thousands of loan applications, it aims to reduce waiting time for borrowers who need cash to rebuild their homes and businesses.
Though the agency's primary function is to guarantee loans made by private-sector lenders, it has always done its disaster-relief lending directly, processing and funding loans itself.
The practice was never a major issue until the aftermath of Hurricane Katrina, which struck on Aug. 29. Critics say the agency has taken far too long to process loans and cut checks.
It was at a congressional hearing in October that banking industry officials first suggested publicly that banks in the affected region be allowed to process disaster-relief loans on the SBA's behalf, but the agency resisted the idea then and continued to do so.
James Ballentine, the American Bankers Association's director of community development, said the turning point came about a month ago when White House officials and the Gulf Coast Rebuilding Office - which is headed by a former community banker - began working behind the scenes to get the SBA to reconsider its stance.
"The White House called us about a month ago and said they liked" the proposal to let banks process disaster-relief loans, Mr. Ballentine said in an interview Tuesday. "They saw merit in it, and as more people came to the table, it helped to broaden [the SBA's] perspective."
It is unclear how lenders would be compensated, but Mr. Ballentine said they would probably be paid a set fee for each loan they process.
Gulf Coast residents and businesses have until March 11 to apply for disaster-relief loans. The SBA says it has approved more than 245,000 such loans totaling $5.2 billion, but it has another 136,000 applications in its pipeline and expects to receive tens of thousands more by the March 11 deadline.
"SBA is committed to delivering aid as quickly as possible to those in need," administrator Hector V. Barreto said in a news release issued late Monday. "This partnership with the private sector will allow local financial institutions to become more involved in the building efforts."
In the same press release, Don Powell, the federal government's coordinator for Gulf Coast rebuilding, said letting banks process disaster loans would speed up the lending process.
"This will help expedite the provision of credit needed to stimulate growth and forward momentum in the economy of the region," he said. Until recently Mr. Powell was the chairman of the Federal Deposit Insurance Corp., and before that he was a community banker in Texas.
Raul Cisneros, an SBA spokesman, said that once the request for proposal is published, financial institutions would have 15 days to submit bids. He said the agency would move quickly to award contracts, which would run for at least one year.
Traditionally, the agency has handled disaster-relief lending by hiring temporary workers to process and underwrite the flow of applications. It has done that with hurricanes Katrina and Rita, hiring more than 4,000 people to process disaster loans.
Even so, borrowers in the Gulf Coast region have complained about long waits for loan approvals and for checks after having their loans approved.
At the Oct. 7 hearing in Washington, Randy Perkins, the co-owner of a video production firm in Covington, La., said he applied for a disaster-relief loan Sept. 9 and heard nothing from the SBA for weeks. He said Tuesday that he ultimately decided against taking out a loan.
Mr. Perkins said his mother-in-law applied for a disaster-relief loan the same time he did. It took the agency nearly five months to process her loan, which was rejected, he said.
"I think things could certainly have gone a little quicker, but in their defense they are facing an unprecedented situation," he said.
Before Monday the SBA resisted allowing financial institutions to participate in disaster-relief lending, but it has been open to other proposals to speed the process. In November it asked banks and other lenders to let loan officers and other professionals work for 12 months at the SBA processing disaster-relief loan applications.
