A storm to remember.

The approach of the fourth anniversary of Hurricane Katrina creates an ideal opportunity to review the recovery that has occurred in New Orleans since Aug. 29, 2005. This "100-year" storm created a seminal calamity for our area, and much has taken place since that very dark day.

We have worked extremely hard and learned many lessons in the aftermath of the storm. Now, with our continued recovery and recessionary challenges in New Orleans as a backdrop, I think there are valuable lessons learned in the Crescent City that can provide helpful insights as we work our way through this national recession toward ultimate recovery.

Economic redevelopment

After the storm, the New Orleans area suffered its own unique recession with unemployment reaching 30 percent levels due to the effects of Hurricane Katrina. We have enjoyed an incomplete but sustained recovery over the last four years. We now are set up to face the challenges that go along with delivering sustained economic redevelopment.

On the negative side, our area is involved in a slow and as yet incomplete job recovery. Repairs to housing are difficult, costly and time-consuming. We continue to experience high insurance costs. New Orleans is mired in a slow recovery with a lack of an overall executable master plan.

We have lost many higher-wage jobs, specifically in the medical arena. We are somewhat overbuilt in the hospitality sector--once the mainstay industry for New Orleans. Our multifamily housing is in the process of becoming overbuilt with a higher concentration of government-subsidized housing units. The long term vacant housing stock in New Orleans is not being cleared.

The severe national economic recession is starting to impact local businesses. Although the number of foreclosures is minimal, problems are beginning to surface.

On a positive side, we continue to see progress with substantial hurricane-protection repairs. We are rebuilding to new, stronger Category 3 standards; the work is progressing and will continue through 2011 or later.

We have continued growth in the energy exploration and petrochemical sectors. The refineries continue to expand and add capacity. The Mississippi River and its ports are a continuous source of growth and strength.

Our medical sector is steadily attracting new professionals to replace those leaving. We enjoy continued heavy construction activity for levees and highways. Drive-in tourism is steady, although we are experiencing a recession in convention bookings. Louisiana is blessed with more than its share of natural resources.

The housing and mortgage market

Following Hurricane Katrina, low mortgage rates and an abundance of federal government funding spurred activity in the New Orleans area. We were fortunate that a $417,000 conforming loan limit financed about 95 percent of the sales in our area.

A foreclosure moratorium after Katrina was responsible for maintaining below-average foreclosure rates. Other factors that contributed to low foreclosure rates included loan payoffs using insurance proceeds and government assistance such as the Louisiana's Road Home program. Moderate but steady house appreciation was another positive factor.

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The New Orleans area has been served by a combination of national, regional and local banks. As U.S. banks have "trimmed down" their balance sheets, it has had the effect of requiring individuals and companies to pay off loans without offering lending alternatives.

One example of the current breakdown in the shadow banking system is the financing of new programs by the Louisiana Housing Finance Agency (LHFA), Baton Rouge, Louisiana. This agency provides competitive 30-year fixed-rate mortgages (FRMs) with down-payment assistance for low- to moderate-income families. Prior to and just after the storms, the LHFA was able to securitize and sell loans in the secondary market for rates at or below the current Federal Housing Administration (FHA) 30-year mortgage rate. Now trading is so thin that $100 million of these bonds trade at 200 basis points or more worse than a GNMA security.

Our area is relatively fortunate to have several healthy local banks that are attempting to increase overall lending with the federal government's accommodating lending policies. One example is the regional Iberia Bank, a Lafayette, Louisiana-based bank that was the first institution in the United States to raise new replacement capital to pay off its Troubled Asset Relief Program (TARP) funds.

Employment

Nationally, unemployment is approaching 10 percent. (It had already hit 9.5 percent in June, the most recent number available.) Due to numerous factors, unemployment in the New Orleans area is substantially below national levels--sitting at 5.5 percent as of the end of May 2009.

Prior to Katrina, the metro New Orleans area had more than 600,000 jobs and a population of more than 1.4 million people. According to Wade R. Ragas, professor emeritus at the University of New Orleans, after the storms, the area lost approximately 140,000 jobs and 200,000 people.

During our subsequent recovery, many of those jobs and families have returned. However, also according to Ragas, we are still down approximately 61,000 jobs and 140,000 people. The loss of population and households is directly proportional to the loss of jobs in our region.

The Obama administration is correct in focusing its efforts on growing and preserving jobs to stimulate the national economy out of the current steep recession. Not only will better job growth help the overall economy fight its way out of recession, but it will also spur increased homeownership.

Our area experienced high unemployment and a terrible recession immediately after the storms. Recently, we have enjoyed a robust job recovery that was aided by substantial government and casualty insurance money.

Although our area currently has low unemployment, we are worried (and the trends confirm) that a persistent national recession eventually could affect our local job prospects.

Single-family and multifamily housing stock

Hurricane Katrina affected all housing in the metro New Orleans area. The rate of recovery was determined not on the owner/occupier-to-rental ratio, but more on the amount of damage to an individual area. New Orleans' older--and in some instances historic--housing stock was a factor in the storm's damage of 250,000 single-family homes.

Since Katrina, we have rebuilt or substantially renovated 200,000 homes. This was accomplished with insurance money and the Louisiana Road Home program funds, coupled with a national volunteer response. A normal year before Katrina consisted of 10,000 new or renovated houses in New Orleans, so we have completed 20 years worth of housing during the past four years.

Home rebuilding has boosted employment and left our area with a greatly renovated housing stock. Home prices have appreciated approximately 3 percent per year for a total of 10 percent during the last three years. However, values have dropped about 5 percent thus far in 2009, mimicking the national scene, albeit at a more tolerable rate.

The federal government made significant funding available for rebuilding low- and moderate-income housing. The Bureau of Governmental Research (BGR), New Orleans, reports that as a result of these programs, the number of subsidized rental units in New Orleans has already rebounded past its pre-Katrina levels and is projected to substantially surpass those levels by 2012.

According to BGR, "Across the United States, government-subsidized housing programs have played a critical role in filling unmet housing needs. But the housing programs have also had a downside. In a number of places, such programs have contributed to the concentration of poverty and low-income residents in the core city."

What we learned

In his book, The Ascent of Money: A Financial History of the World, author Niall Ferguson writes, "The U.S. Army Corps of Engineers described Hurricane Katrina as a 1 in 396 storm," meaning that with an average of four storms per year, Katrina was truly a once-in-100-years storm. Similarly, the United States economy is in the midst of its worst recession since 1929, making it akin to a 100-year event.

I see parallels between the New Orleans economy and the national economy. Even when you have net out-migration, jobs are most important for the economic redevelopment of our vibrant community.

According to Professor Ragas, talking about New Orleans specifically, "Loss of population and households is directly proportionate to loss of jobs--58,000 [fewer households] vs. 61,000 [fewer jobs]."

Monies used for reconstruction have worked in our area, Jobs and Road Home program funds have kept people living and investing along the Gulf Coast. For instance, insurance money to rebuild homes has worked to create jobs and replenish our housing stock.

However, continued government rental stipends three years after the storm have not worked and have contributed to maintaining the welfare state.

Nevertheless, New Orleans has steadily come back from the devastation. Four years after the storms, we are still in recovery and our unemployment is 5.5 percent as opposed to roughly 10 percent nationally. The bottom-line lesson we have learned from all this is clear. The Obama administration is correct to focus on jobs to restore the national economy.

Our region enjoyed moderate but steady overall house-price appreciation of 10 percent for the period of 2005 through 2008. This has contributed to a lower foreclosure rate by enabling rate and payment improvement through refinance and modification. Nationally, there is a higher foreclosure rate in areas that are experiencing house deflation following years of runaway appreciation.

In our region, Katrina wiped out many homes, which has contributed to pent-up housing demand. We rebuilt 200,000 homes in four years. The insurance monies and federal funding that encouraged people to rebuild and renovate homes has worked. People are living in upgraded housing stock.

The federal government's funding of the Road Home program directed funds to purchase severely damaged homes from homeowners. This program worked as it took older housing stock off the market. Secondly, it gave uninsured homeowners the means to repurchase another home, which created demand.

However, the program to modify a delinquent borrower did not work as well. First, the delinquent borrower still has an obligation; and second, the older home is still in the housing pool. Currently, the Obama administration's loan-modification program is facing similar problems gaining traction.

As our fourth anniversary approaches, our area is recovering well. I could not disagree more with Ferguson when he wrote: "In the Westerns I watched as a boy, I was fascinated by ghost towns--short-lived settlements that had been left behind by the fast pace of change on the American frontier. It was not until I went to New Orleans in the wake of Hurricane Katrina that I encountered what could very well become America's first ghost city."

We do have fewer people and houses in our area than before Hurricane Katrina, but the people who are here have job opportunities and are finding a way to remain in those houses. They want to be here.

We feel strongly that there are many lessons to learn from the effects of the catastrophic storm that hit our city, as well as from the recovery that is still under way and the resolve of the people that were in the storm's path. New Orleans is emerging a stronger city from Katrina, as will the nation from this recession.

By Edgar Bright, CMB 

Edgar Bright. CMB, is president of Standard Mortgage Corporation in New Orleans He can be reached at [e-mail]