Plans would turn over control of hard-hit areas

Faced with tens of thousands of heavily damaged homes in the New Orleans area, and a cloud of uncertainty about whether their owners want or will be able to repair them, lawmakers and other leaders are floating radical ideas that would give the government broader control over private property.

It's not clear, though, whether any of the trial balloons will fly. Historically, Louisianians have held property rights sacrosanct, and some legislators are uneasy about pushing any laws that could be seen as expanding the government's rights to seize property.

The leading concepts are coming from both sides of the political aisle, at the state and federal levels. U.S. Rep. Richard Baker, R-Baton Rouge, has proposed creating a "recovery corporation" that would acquire large tracts of land in areas where homeowners are unable to rebuild.

Property owners, who Baker said would not be obligated to sell to the corporation, would get their mortgages paid off, as well as possibly receiving a cash settlement under certain circumstances.

Another idea that has gained exposure, in part because of a recent story in the Los Angeles Times, was hatched by bond lawyer Wayne Neveu of Foley & Judell and longtime housing activist and Finance Authority of New Orleans Executive Director Mtumishi St. Julien, both advocates of affordable housing.

Their plan, which would require action by the state Legislature, would employ the ancient Louisiana concept of "usufruct," which most often comes into play when a spouse dies and allows the use of his or her home to the surviving spouse so heirs cannot sell it.

In this case, a homeowner who can't afford to fix his property would voluntarily grant the government use of his house but retain the title, potentially giving the city access to thousands of homes.

The details of the idea aren't completely worked out, but proponents envision the city paying the owner's note using money it receives from rentals, with the owner occupying the home after repaying the city for repairs.

Proponents of the ideas emphasize that they are offering people an opportunity to get something out of heavily damaged properties, some of which are underinsured and heavily mortgaged. Without such drastic measures, they fear that whole neighborhoods could remain choked with blight.

Concerns raised

Though most knew only the bare outlines of the usufruct concept, and even less about Baker's plan, several legislators said they worry that the proposals smack of heavy-handedness by government. To some, the discussion has the potential to rekindle constituents' worries that whole neighborhoods will be bulldozed and longtime residents forced out.

Instead, some lawmakers said they would prefer to direct financial assistance to homeowners to help them rebuild.

"I would be concerned about a proposal to transfer any portion of individuals' ownership to government without clarity on how the owners will benefit from government use of it," said state Rep. Karen Carter, D-New Orleans, who added that she is reserving judgment until the concept is fleshed out more.

State Rep. Juan LaFonta, D-New Orleans, was more blunt. "That usufruct is for the birds," he said. "I'm really disturbed by that."

Some residents have had similar reactions. At a crowded public meeting Friday of a mayoral subcommittee on housing, a woman asked St. Julien, who was moderating the discussion, to explain the usufruct notion. Before he began, she offered her own assessment of it. "It sounds like caca," she said, to laughter from the crowd.

One concern some decision-makers have is that although participation would be voluntary, people could end up handing over their property rights "under duress" because they don't have any other options, said state Rep. Cedric Richmond, D-New Orleans. If the proposal goes forward, safeguards would have to be added to ensure that owners are protected, he said.

If New Orleans Democrats are iffy about the idea, it's even less popular among Republicans.

"I'm not saying it's a lousy idea, but I am saying it doesn't grab me at all," said state Rep. Peppi Bruneau, R-New Orleans, whose Lakeview district is among the most devastated in the state. "Private property is what makes America great. You buy into homeownership, you buy into the American dream.

"Maybe they ought to come up with something that says, 'Here's how you can rebuild. Here's a 40-year mortgage.' I'd much rather see that than some sophisticated way of taking people's property from them."

Not taking

Neveu and St. Julien said the purpose of their usufruct proposal is not to take property. And they noted that the city already has the power under state law to seize blighted and abandoned property through the New Orleans Redevelopment Authority.

The usufruct idea, they said, has more promise than widespread redevelopment authority seizures for a couple of reasons: Expropriation is slow and expensive, requiring repeated legal notices sent to owners of property; it often takes more than a year to seize a property; and an attempt to seize hundreds or thousands of properties could hopelessly clog the system.

Usufruct would be not only quicker, but less drastic, which should make it more palatable to homeowners and politicians alike, they said. St. Julien told the audience at the housing meeting Friday that some type of drastic government intervention will be necessary to ensure that "your house is not surrounded by a sea of blight."

"The idea was to come up with a device instead of the draconian concept of the government expropriating properties from people who can't fix them through no fault of their own," St. Julien said. "This idea seemed more palatable to the public, where the government would have right of control but not ownership."

Under their plan, if a homeowner could not afford to rehabilitate a home but didn't want to give it up, he or she would sign over the use of it to the city or parish. The municipality or parish would then pay to renovate the structure to "minimum habitability standards," and rent it to an "essential worker" -- a cop or firefighter, for instance, or perhaps a contractor participating in the relief effort.

The rent could be used to pay the note. At some point over the next five years, the owner would have the chance to settle up with the government and reclaim the property. If the owner no longer wanted the property, or couldn't afford it, it could be sold, with the city and the owner sharing in the profits or losses.

With estimates of the numbers of severely damaged property in the city ranging from 50,000 to 100,000, advocates of the usufruct concept say the program could be used on a broad scale. But it wouldn't have to be. Both Neveu and St. Julien said it would be merely one of a number of tools at the city's disposal.

Neveu said he envisions usufruct being employed first in neighborhoods that didn't even flood -- Uptown and Algiers, for instance. Those areas contain blighted and damaged properties that could be renovated and rented easily because of the availability of services, he said.

If that worked well, Neveu said, the program could be expanded to other areas, perhaps sections of Gentilly that received minimal floodwaters.

"Let's say on a single square block you might have 20 units, and say you find that 11 households are willing to come back in, and nine are abandoning the block because the owners don't have the wherewithal," he said. "You could come in with a contractor and have all nine of those units, which are in effect vacant and abandoned, repaired. Remove the Sheetrock, the floors, the carpets, get rid of the mold."

The whole notion is premised on the theory that neighborhoods that sustained serious damage won't bounce back if a high proportion of owners can't rebuild or renovate. If a block seems likely to be plagued by blight, even owners who want to and can afford to come back may choose not to.

"The idea is to help create a neighborhood, a critical mass," Neveu said, adding that a similar government program in New Jersey could serve as a model.

Affordable-housing advocates say they think the idea has promise, particularly for damaged homes that were occupied by renters.

Lauren Anderson, director of the nonprofit Neighborhood Housing Services and a member of the mayor's housing subcommittee, said renters "have even less control of their destiny than homeowners."

The usufruct proposal, she said, "might be an innovative way to help absentee landlords return their rental houses to commerce and help tenants return to the city." She added that the program would work only if it were voluntary.

'Not here to dictate'

Baker's proposed Louisiana Recovery Corp. would be financed with U.S. Treasury bonds and run by a board appointed by the president. But Baker said the group's focus would be determined by local planners who would target its resources at the most needy neighborhoods.

"We are here to assist. We are not here to dictate," said Baker, a former real estate broker and senior member of the House Financial Services Committee.

Two of the board members of the 10-year entity would be selected by recommendations made by the governor.

Baker, like St. Julien and Neveu, said his plan does not envision taking anyone's property. Owners would not be forced to sell to the recovery corporation, he said. They could also maintain a right to rebuild in the area, although it would not necessarily be on the same tract if community leaders decided to reconfigure a neighborhood.

In some ways, Baker's plan resembles that of St. Julien and Neveu. Owners who wanted to maintain an interest in their property would be able to work with the corporation to pay off the mortgage and reimburse the corporation for demolition work or improvements.

But for people who just wanted to get rid of their houses and move on, the corporation would clean up the properties and sell them "in a profitable manner," according to Baker's plan.

"There has to be an ability for someone to come in and acquire multiple tracts," Baker said. He said many people will find it difficult to pay off mortgages on houses that are no longer habitable. Others may face hard decisions about rebuilding, with uncertainties ranging from future insurance costs to questions about their neighbors' plans.

Baker's legislation would give the corporation a "limited" ability to acquire property through eminent domain, but only if a person had decided to sell but then could not agree on a purchase price. The corporation would also be able to use eminent domain to obtain property if the owner had retained an interest in it but then failed to develop the land.

Baker said the benefit of his plan is that it would not involve asking Congress for money at a time when federal lawmakers have grown tired of the growing number of requests from the devastated Gulf Coast region. Instead, the corporation would issue shares of stock that the U.S. Treasury would buy, likely through bonds.

"There is simply not enough resources to reconstruct every aspect of the development to the level of which some would expect," Baker said.

The usufruct plan, like Baker's, would be self-sustaining to a degree, but if it were to work on any kind of large scale, it would require initial grant money. St. Julien and Neveu say they hope the city will receive an infusion of community development block grants, which could be funneled into the program.

Debate coming

Though legislators asked about the plans seemed lukewarm at best, Mayor Ray Nagin and Gov. Kathleen Blanco were more vague in their assessments.

Nagin said he has limited knowledge of the usufruct concept but has examined it closely. He said he was pleased that "people are coming up with ideas and possible solutions."

Kim Hunter Reed, Blanco's top housing aide, said various state level task forces have been looking into the usufruct idea. But whether the governor will endorse it, or include it in her call for a special session, is an open question.

"We're looking for ways to ensure we have affordable housing stock in the state," Reed said, adding that she had not discussed usufruct directly with the governor. "The mechanisms by which that occurs obviously will be debated, as they should be."

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.