The U.S. Treasury cut a disaster relief loan to Puerto Rico by over 50 percent this week, according to the island’s Gov. Ricardo Rossello. This relief fund of $4.7 billion was provided in October, during the aftermath of Hurricane Maria, and has now been reduced to $2 billion. An official statement from the Treasury said that the move was made in an attempt to safeguard the investment of federal taxpayers, according to CBS News.
In a letter asking Congress to intervene, Rossello said the loan reduction will put the island in a “dangerous financial dilemma” and cautioned that the diminished funds could force Puerto Rico to cut some essential services. “Any material interruption to Puerto Rico's public services will only exacerbate outmigration of its population to the mainland and further deepen and prolong Puerto Rico's decade-old fiscal and economic crisis,” Rossello said.
Congress originally approved the community disaster loan as part of a larger relief package designed to aid recovery from Hurricane Maria as well as the earlier Hurricanes Harvey and Irma. Puerto Rico still has not received the loan funds, and Rossello criticized the new restrictions the Treasury is seeking to apply to the loan, saying they will make it “extremely difficult for Puerto Rico to access these funds when it needs federal assistance the most.” Rossello added that Treasury officials had indicated they did not intend to forgive the loan. (According to former Treasury officials cited by Bloomberg, “about 90 to 95 percent” of community disaster loans are eventually forgiven.)
CBS News reports that Treasury Department and FEMA told Puerto Rican officials in January that the loan was being temporarily withheld due to concerns that the Puerto Rican government was not actually “facing a cash shortage as it had previously warned.” Allegedly, the loan funds would be disbursed via the Community Disaster Loan Program once Puerto Rican’s funds drop below a certain amount. In his letter to Congress, Rossello chastised the “misguided delay and policy decisions contrary to Congressional intent.”
In addition to the physical damages caused by the storms, Puerto Rico is also facing a potential foreclosure epidemic. The New York Times in December reported that one-third of Puerto Rico’s 425,000 homeowners were behind on their mortgage payments, with around 90,000 borrowers having become delinquent as a result of Hurricane Maria. In early February, HUD announced a $1.5 billion grant to Puerto Rico, designed to “support long-term recovery of seriously damaged housing and local businesses in Puerto Rico.”
To provide further relief to the victims of Hurricane Maria, the Federal Housing Administration (FHA) on Thursday declared a 60-day extension to the foreclosure moratoriums implemented after the storm. This extension has been announced for the Presidentially declared disaster areas, according to a media statement. The extension is also available for those directly affected by the disaster or unable to make mortgage payments as a consequence of the disaster.
This news comes after FHA last week introduced the Disaster Standalone Partial Claim, which will enable lenders to secure an interest-free second loan on the mortgage to help cover up to 12 months’ worth of missed payments. The loan is payable when the borrower sells their home or refinances their mortgage.