A lawsuit that challenged the federal government’s approval of Mississippi’s plan to divert a half-billion dollars in Hurricane Katrina housing funds to a port project has led to an agreement that aims to help thousands of needy storm victims.

U.S. Housing and Urban Development Secretary Shaun Donovan, Gov. Haley Barbour and attorneys who filed the lawsuit announced Monday that $132 million will now be available for storm victims who didn’t qualify for other housing programs. The new program will target low-income persons, the elderly and the disabled.

Donovan said the state’s new plan will provide the necessary funding for Mississippi residents who are still displaced. The action comes nearly two years after housing advocates sued HUD over its approval of the planned diversion.

“We are fully committed to working with all parties involved to ensure that the affected families receive the relief and long-term recovery assistance that they are due,” Donovan said in a news release.

The new Neighborhood Home Program will provide up to $75,000 to repair homes damaged by Katrina’s wind or flood in 2005. Other new programs will help low-income people occupy rental housing or Mississippi Cottages, the temporary housing units built after the storm.

Dorothy McClendon, 61, said she’s one of those still living in a damaged home five years after Katrina. McClendon didn’t apply for earlier Katrina housing programs because her damage was caused by wind, and programs only covered flood damage caused by Katrina’s surge.

“I have mold and stuff behind my walls because water has been sitting there for five years,” she said. “I have a partial leak in my roof and rain is coming into my kitchen area.”

The Gulfport resident — one of the plaintiffs in the lawsuit — said she cried when the announcement was made as she thought about other residents in her situation.

“Many people are living in contaminated houses because they have nowhere to go,” she said.

Some 4,000 residents have been identified so far as being eligible for the new program, said Joe Rich, a plaintiffs’ attorney with the Lawyers Committee for Civil Rights.

“There were a lot of people who were told they weren’t eligible for programs right up front, and they’re the invisible victims,” Rich said.

Residents have until Jan. 31 to apply, said Lee Youngblood, a spokesman for the Mississippi Development Authority.

About $92 million in new assistance will be a reallocation of funds from other federally funded Katrina projects. A $40 million reserve fund will be created from part of the money that had been steered to the port, said Youngblood, whose agency has overseen the distribution of the $5.4 billion that the state received from Congress after Katrina struck.

“That’s OK with us,” said Noah Shaw, another plaintiffs’ attorney. “The whole point here was to create an incentive that both HUD and the state do the right thing. We don’t really care where they get the money as long as our plaintiffs are going to have their needs met.”

The Mississippi State Conference NAACP, the Gulf Coast Fair Housing Center and residents filed suit in December 2008 challenging HUD’s approval of the diversion. A federal judge in Washington, D.C. threw out the case earlier this year, but the ruling was appealed.

As part of the out-of-court agreement, the appeal won’t be pursued, Rich said.

The state will begin an outreach campaign to find out if there are others in Gulf Coast counties who also would be eligible.

Online:

Mississippi Development Authority: http://www.msdisasterrecovery.com