CHALMETTE, La. - Five years after Hurricane Katrina, Jay Young is haunted by the desperate voices on the other end of the phone crying, begging for help.
As a loan officer for a federal agency meant to help homeowners and businesses, he had high expectations he could make a difference. But he claims he had to turn away many qualified applicants because supervisors pressured him to close files quickly.
Karen Bazile remembers having high hopes too, when she applied for a loan from the same agency, the Small Business Administration, to rebuild her home in Chalmette, a New Orleans suburb. While she got the money, she lost faith as she struggled with loan officers who misplaced paperwork and told her she had only 48 hours to find and fax critical documents or her application would be canceled.
Some 160 miles east, in Alabama, Erik Schmitz, Fairhope Yacht Club's former commodore, takes in a breathtaking view of Mobile Bay from a posh new clubhouse rebuilt in part with a $1.5 million disaster loan, the SBA maximum. For Mr. Schmitz, the process was smooth sailing.
While stories of the Federal Emergency Management Agency's contaminated trailers and the Army Corps of Engineers' inability to shore up levees captured headlines in the aftermath of the deadly 2005 storms, the bungling of the SBA, the lead federal agency helping people rebuild their homes and businesses, largely has been untold.
The sagas of Mr. Schmitz, Ms. Bazile, and the SBA's Mr. Young, who worked out of the agency's Fort Worth loan processing center, collectively reveal how the SBA failed repeatedly, an ominous experience the agency is set to replay in the aftermath of BP Plc's oil spill.
These are stories of a mismanaged bureaucracy that hurt half a decade later: tales of applications for low-interest disaster loans that should have been approved but were not, of applications deleted from the computer for no valid reason, of impossible-to-meet deadlines set to clear backlogs, and of a process so chaotic and painful that thousands gave up.
An Associated Press investigation based on more than 200 interviews, thousands of documents obtained under the federal Freedom of Information Act, and a detailed computer analysis of SBA data from hurricanes Katrina and Rita found that:
• Despite the obvious need, 55 percent of homeowners and businesses that applied for help after the hurricanes were turned away. According to SBA data, of 318,953 applications processed, 175,463 were rejected and 143,490 were approved.
• Only 60 percent of the loan money approved by SBA reached applicants. Over the years, SBA officials have told congressional committees that the agency had approved more than $10 billion in loans, touting it as an example of how SBA had helped the Gulf Coast. But only $6.1 billion of the money has been dispensed. SBA officials say many applicants never accepted the loans because they found other ways to rebuild, such as insurance money. But many former applicants said they walked away because the process took too long and was too complicated.
• Of the money it did pay out, $357 million, nearly 6 percent, never was repaid. More than a dozen said SBA hasn't contacted them about repayment.
• Country clubs, yacht clubs, private schools, and megachurches got millions in loans. Some rebuilt bigger and better, contradicting SBA rules that damaged buildings should be repaired only to the original state.
• Homeowners and businesses in higher-income areas were more likely to get a loan than those in lower-income areas, according to AP's analysis of SBA data by ZIP code. "The truth is that only the wealthy moved through the system easily," said Gale Martin, another ex-SBA loan officer. "If you were of a certain income, we funded you first, which is not the way the system is supposed to work." Ms. Martin contended that contrary to SBA's mission to especially help those who didn't have the means to rebuild, applicants with higher credit scores and bigger incomes were cherry-picked for processing first because those files could be closed quicker.
• A racial disparity existed. For example, the predominantly white, wealthier Lakeview section of New Orleans had the city's highest ratio of approvals, while the lowest approval rates were in poorer, mostly black areas such as the Lower 9th Ward. But a racial disparity was clear even among economically similar areas. SBA approved nearly 66 percent of applications in a predominantly white part of suburban St. Bernard Parish but approved only 42.1 percent in a predominantly black, adjacent section of eastern New Orleans with comparable median household income. SBA officials said they don't collect data about race on loan applications but try to reach out to applicants in poor neighborhoods.
SBA officials insist the agency is better prepared to handle a major disaster.
"We're not proud of what happened during the 2005 Gulf Coast hurricanes," said James Rivera, deputy associate administrator of SBA's office of disaster assistance. "Our response was slow, but we've learned from our mistakes."
During the past five years, officials say, they have added staff, improved technology, and simplified the loan process to get money quickly to disaster victims.
But reports by government watchdog groups and some critics have slammed SBA for being too slow to improve an agency with a troubled past.
Congressional investigators and whistleblowers question whether the SBA is any better equipped for a major disaster, as the region grapples with the oil spill-related assault on three pillars of its economy - seafood, tourism, and offshore drilling.
The SBA is setting up disaster recovery centers along the Gulf Coast, although the oil spill effort likely will be overshadowed by the hurricanes' economic toll. "This is going to happen again - tomorrow - if there's another Katrina," Ms. Martin said. "They didn't fix enough for it not to happen."
Images of New Orleanians trapped inside the Superdome without food and water, or waiting on rooftops for help, haunted Americans in September, 2005. Police officers walked off the job, looters ransacked shops, and critics scolded the Bush administration for being too slow to respond.
Meanwhile, a different kind of chaos unfolded inside the SBA.
A computer system to speed and simplify loans crashed time and again, causing massive delays. That wasn't the only problem.
"There were lots of people sitting around not doing anything, with thousands of applications pouring in every day," said Brad Durtschi, a former SBA loan officer who works for FEMA.
In the years leading up to the storms, staff had been cut. When Katrina hit, then Rita three weeks later, SBA had 880 employees to process hundreds of thousands of loan applications, including 190 at the Fort Worth center.
SBA scrambled to hire several thousand more, many to work in Texas, where applications filed in dozens of makeshift disaster recovery centers along the Gulf Coast were sent for processing. The new loan officers - many from the private sector, with no experience - were rushed into service and expected to navigate complex rules and regulations.
The applications piled up.
By December, 2005, the system was gridlocked. Hundreds of thousands of applications sat in computer queues for processing.
With congressional pressure mounting to turn loans around more quickly, the agency began using new methods to clear the backlog that had little to do with helping people get loans, former loan officers and supervisors said.
Supervisors would reject applications if one sheet of paper or signature was out of place. Loan officers had to process up to twice as many applications per day. When one landed on his or her desk, an officer had to try three times within 24 hours to reach the applicant by phone. If unsuccessful, the loan was declined or indefinitely shelved.
If shelved, the application was canceled and a letter was sent saying the applicant had 60 days to reapply. But many times, the loan officers, under pressure to reach quotas, would call only once or not at all, then withdraw or decline the application, the former loan workers said.
Supervisors often conducted contests with cash prizes to reward loan officers who cleared the most applications, usually by rejecting as many as possible. One supervisor said she won $100 for exceeding production quotas.
"I would hear loan officers laughing about the loans they turned down," Mr. Young said.
Others recall productivity being the mantra at staff meetings. At one, a supervisor told how to get people off the phone: Use an egg timer. When it goes off, hang up.
One supervisor, who spoke on condition of anonymity out of fear she would lose her job, said that on weekends, supervisors and other managers would order pizza and just empty the queue of applications.
The extra sessions were called "Signoff Sunday," she said.
SBA's Mr. Rivera questioned whether supervisors pushed loans through without review.
"Obviously, when you have 4,250 employees, you're going to have some disgruntled employees," he said.
He said loan officers had to meet strict production quotas in line with the private sector. If they didn't, they could be let go.
Over the past year, AP reporters visited dozens of Gulf Coast communities, going door-to-door in two neighborhoods - in Waveland, Miss., and Chalmette, La., with high concentrations of SBA loans that were approved but never disbursed.
Time and again, on streets where recovery has been hard to come by and where tall, untended grass and cracked foundations stand as reminders that many more people used to live and work here, the stories were consistent: a nightmare of lost paperwork; sudden and onerous deadlines; and uncooperative, even combative loan officers on the phone.
Ms. Bazile remembers how she became so upset dealing with the SBA process that she had to seek medical assistance.
"I had no idea how overwhelming it was going to be," said Ms. Bazile, 44, a former newspaper reporter who works in the St. Bernard Parish president's office. "My blood pressure shot up. My cardiologist asked me to stay home for a week or so, and so I did, but the problems didn't go away."
Dealing with the agency became a full-time job for Ms. Bazile, who lives on a street in Chalmette that saw one of the highest concentrations of SBA activity along the coast. She took a seven-week leave from her job at the Times-Picayune to contend with the mounds of paperwork and battery of phone calls it took to secure the money to rebuild her home.
More than once, a loan officer gave her a 48-hour deadline - out of the blue - to provide a document or risk having her file closed. Phone messages went unreturned, and faxes to SBA mysteriously went missing.
"It caused incredible emotional distress on me," a tearful Ms. Bazile said. "Many, many times, my husband said, 'Just let it go. Let it go. We'll be all right.' And we could have walked away. But, in the end, that low interest rate was the very key to the way we're living right now."
From the Fairhope Yacht Club's wraparound porch, Mr. Schmitz watches boats bob before an orange-and-pink sunset and describes how Katrina destroyed the old clubhouse, a rambling, one-story structure.
That gave members a choice: Restore the facility to its former specs or build a new multistory clubhouse with amenities that could attract new members. They chose the latter.
The new club's $4 million price tag includes an SBA loan of about $1.5 million. The facility is double the size of the old, with a restaurant and bar and a swimming pool that alone cost nearly $300,000. The Fairhope Yacht Club reopened in 2008; these days, there's a waiting list to join.
"For us, Katrina was an opportunity to build something bigger and better," Mr. Schmitz said.
The yacht club had enough insurance to rebuild without SBA money. But without the federal help, there would have been no upgrade. "I don't see anything wrong with that," he said.
Yet SBA rules state loan recipients should rebuild properties only to prestorm conditions. "Any improvements beyond predisaster condition is upgrading, and is not eligible," SBA regulations state.
There are exceptions, but they have to be authorized case by case. For example, the agency will allow an upgrade if an applicant uses his own money or borrows from a private lender to pay for the extra improvements. But agency officials have to check whether the borrower has the ability to repay the SBA loan and "any other debts."
Borrowers don't always tell SBA about the extra expenditures, though, and the agency doesn't always check.
Mr. Schmitz said the club didn't ask SBA if it could upgrade. But everyone in the community knew it was building a bigger yacht club.
"There was no indication anywhere in the file that the yacht club upgraded their facilities using SBA disaster loan proceeds," SBA spokesman Carol Chastang said in an e-mail. But she said the yacht club had "completed much of the rebuilding with insurance and outside funding by the time it applied for the SBA disaster loan."
"What does that tell you about how the entire process worked? Did they really need the money? This violates the spirit of the rules," said Ms. Martin, one of the former SBA loan officers.
Mr. Schmitz said the club's members helped navigate the loan through the system. "You have to understand that we have people from all walks of life," he said. "We have lawyers. We've got people who - loan officers, and all this - who all knew pretty much the inside track on all this stuff, and they took care of it for us."33.61535 -95.73168