Quake Recovery Program Canceled : Finances: Wilson scraps plan for $575 million in loans to reconstruct housing in wake of bond issue’s defeat. City officials fear serious impact.

Plans for the reconstruction of nearly 20,000 vacant apartment units in Los Angeles are in jeopardy after Gov. Pete Wilson canceled a loan program for the owners of earthquake-damaged buildings, a city housing official said Thursday.

Loss of the $575-million California Natural Disaster Assistance Program also will gut the city’s program to rescue an additional 18,000 apartment units and 10,000 houses at risk of abandonment because the owners cannot afford repairs, said Gary Squier, general manager of the Los Angeles Housing Department.

“Our recovery strategy is sort of in disarray right now,” Squier said.

Wilson canceled the program Wednesday in response to the defeat of Measure 1A, the $2-billion earthquake-relief bond, on Tuesday’s ballot.

Before the governor’s announcement, state housing officials had planned to unveil the program at a news conference in Chatsworth on Wednesday.

“We would have given out the details and what people would have needed to take to the emergency service centers,” said John Frith, assistant director of the Department of Housing and Community Development. “We were planning on issuing and accepting applications next week.”

Frith said the department will work with local and federal officials and lenders to try to work out innovative ways to assist earthquake victims.

Squier said, however, that all other means have been exhausted.

“That was a critical part of the resources we need,” Squier said. “We have resources, but we’re going to run out. I estimate we’re going to be able to take care of 40% of the need.”

Squier said the state loans were a last resort for the owners of 2,750 apartment buildings, predominantly in the San Fernando Valley and Hollywood, vacated because of earthquake damage.

“If we don’t have sufficient resources, a percentage of the buildings definitely will go unrepaired,” Squier said.

Besides the now-vacant buildings, Squier said, there are 28,000 other houses and apartment units that could be abandoned as the owners and tenants lose faith that repairs can be made.

They “are on streets that have become abandoned due to the damage around them,” Squier said. “The tenants have left because it’s just a scary place to live.”

The owners have been unable to obtain federal assistance because the Federal Emergency Management Agency makes no loans to apartment owners, and Small Business Administration loans do not meet their needs, Squier said.

SBA loans cannot exceed $1.5 million, which is not enough to repair many larger buildings. The state loan program that would have been funded by the bond issue had no limit for apartment loans.

Other apartment owners do not qualify for the loans because, with no tenants paying rent, they cannot afford to begin making loan payments immediately, as required by the SBA, Squier said. The state loans would have offered flexible repayment options.

Although FEMA does lend money to homeowners for earthquake repairs, the maximum is $22,000 per recipient, Squier said. The state loans were intended to add up to $50,000, enabling the repair of more heavily damaged homes.

As contemplated, had the bond measure passed, the state loan program would have provided $315 million for single-family homes and $160 million for apartments, plus a $100-million pool to induce private lenders to make further loans.

Without that money, large numbers of property owners can soon be expected to walk away from their homes and apartment buildings, allowing whole neighborhoods to drift into decay, Squier said.

Generally, lenders allowed the owners of damaged buildings to suspend mortgage payments for a period after the earthquake but now are beginning to start foreclosure proceedings against those who cannot pay, Squier said.

Squier said he had planned to begin taking applications from apartment owners for state loans this week.

“We . . . were ready to roll,” he said. “Now we won’t.”

Currently, the city has $89 million in federal housing relief grants available to assist homeowners and apartment owners. An additional $20 million is expected from a federal neighborhood reconstruction program, Squier said.

“It’s hard to know what the total need is,” he said. “We’re clearly short $100 million, probably $200 (million) for rebuilding these apartments and neighborhoods.”

The California Natural Disaster Assistance Program was formed after the 1989 Loma Prieta earthquake to make up for deficiencies in the federal relief effort, said Mary Comerio, professor of architecture at UC Berkeley, who studied the reconstruction of Bay Area housing.

Comerio said the state program, financed by a temporary sales tax in 1989, proved ineffective because of start-up problems and insufficient funding.

The program provided $43 million for houses and $43 million for apartments, Comerio said.

Because of the inadequacy of federal and state housing relief programs, about 40% of the 12,000 damaged dwellings in Oakland and San Francisco remain vacant because the owners could not afford to repair them, she said.