Storm loan default rate up
Jul 18, 2011
The following article waspublished in the Fort Myers News-Press on July 18, 2011:
Exclusive: Storm loan default rate up
By Melanie Payne
Thousands of business and home owners who turned to the federal government for financial help recovering from the 2004 hurricanes have failed to pay back the loans, according to data The News-Press obtained from the Small Business Administration.
Overall, almost 15 percent of the taxpayer-funded loans made to households and businesses in Florida after hurricanes Charley, Jean, Frances and Ivan were not paid back as agreed. The rate of failure on the 1,562 business loans disbursed – separate from the ones made to households – is just less than 20 percent, almost twice the historical average for SBA disaster loans.
“The SBA helped us a lot and I really needed it,” said Kon Pak, of Haines City who defaulted on a disaster loan. “But I don’t have the money to pay them.”
According to data obtained by The News-Press under the Freedom of Information Act:
– The SBA approved 13,432 disaster loans for a total of $505.7 million and disbursed $338.6 million to 9,239 borrowers.
– $48.1 million in SBA disaster loans have been charged-off, liquidated or are in default. More than $4 million is past due.
– The business loan default rate is 19.9 percent, representing $24.1 million. For household loans, this figure is $23.1 million.
– In Lee County, 1,785 loans were approved for $75.25 million. The data show $7.4 million is in a charged-off status, meaning unlikely to ever be paid.
– The SBA approved $197.98 million in loans in Charlotte County, the most of any county in the state.
– Collier County, relatively unscathed by the 2004 hurricanes, received 28 loans for $902,300. Six of them, totaling $449,000 have been charged off.
The data are not all bad news.
The majority of borrowers either repaid the loans in full or are current on their payments. In Lee County, 522 borrowers have paid off their loans.
In all, more than 3,800 borrowers have paid back $126.3 million, and another 3,844 borrowers were current on their payments as of May.
Gregory Peterson falls into both camps, the majority who are paid off and the minority in default.
Peterson received an SBA homeowner’s disaster loan for $200,000 secured against his residence. The property, a waterfront Iona-McGregor 14,000-square-foot house on 3 acres, sold for $2.9 million in December 2007.
“We had $1 million in equity in that house and it (the SBA loan) got paid off,” Peterson said.
The disaster business loan Peterson received from the SBA for $193,600 was for his company, Southwest Marine Salvage Inc. That loan is in default, he said.
When he took out the loan, Peterson said, business was going great. Then the economy began to fail.
“I was trying to keep current and pay it off,” Peterson said. “The corporation can still afford the $800 a month payment, but it couldn’t afford the $10,000 a month mortgage payment.”
The mortgage company is foreclosing on Southwest Marine’s property, listing the SBA as a defendant in the foreclosure.
There are limits
Since 1953, the SBA reports it has approved 1.9 million disaster loans for more than $49 billion.
In a disaster, all loans both to households and businesses are made through a program administered by the Small Business Administration.
After the 2004 hurricanes, homeowners were eligible for loans up to $200,000 to repair damage to their primary residences not covered by insurance. Homeowners could also receive loans of up to $40,000 to replace uninsured personal property such as furniture, clothing or autos that were destroyed in a disaster.
Business loans had a $1.5 million cap. Since 2004, the cap has been raised to $2 million.
Interest rates for homeowners were about 3 percent and around 4 percent for businesses. The terms were up to 30 years.
Robert Myers, area director of the Florida Small Business Development Center at the University of North Florida in Jacksonville, was not surprised that homeowner loans were more likely to be paid off than were business loans. The property is still there after it has been repaired and still has value, but the same can’t be said of a business.
After a disaster, the conditions that made a business successful and able to qualify for a loan may not exist anymore, Myers said. And the business may no longer be viable, he said.
“Is the market still there? Do people want what (the business) has to sell and can they afford to buy it,” Myers asked.
If the answer is no, he said, the business is unlikely to be able to repay the disaster loan.
Economy didn’t help
Market changes in Southwest Florida after the hurricanes are why siblings Carlene and Bill Maurer couldn’t pay off a $249,700 SBA disaster loan.
They used the money to make $270,000 in repairs to the Beach Bowl Lanes, their 12-lane bowling alley on Fort Myers Beach, in late 2004 and 2005. But the snowbirds and tourists the business relies on didn’t return in late 2005 because of Hurricane Wilma.
“We made payments for three years,” Carlene Maurer said, but couldn’t afford to continue the $1,885 monthly note.
“The way the economy went down the proverbial poop chute, with the hurricanes and then the recession, we had no choice,” Maurer said. Although Beach Bowl is still open, the property and business are for sale.
Kon Pak’s story of default is heart-breaking.
The 56-year-old Korean immigrant and her husband owned a Howard Johnson’s hotel in Haines City.
After suffering damage from three of the four hurricanes in 2004, the Paks borrowed $372,800 from the SBA for a new roof and carpet for the hotel.
The hotel is located between Tampa and Orlando, and the Paks depended on tourist overflow. But Orlando hotels stopped filling up, and people didn’t have to stay as far as Haines City. The restaurant on the property closed, and the Paks lost the rental income.
“Gas prices went high and people weren’t driving,” Pak said. “Business went down 85 percent.”
The situation forced the Paks to file Chapter 11 bankruptcy. Almost all that the Paks had worked and saved for 30 years since coming to the United States was lost, but the couple held onto the hotel.
Because of Howard Johnson franchise fees the Paks couldn’t afford, the business is now a Stay Plus Inn.
“We’ve given up our house and moved into the hotel. I work seven days,” Pak said. “That is how the situation is. I pray every day it will get better. And still, I’m here.”