A House hearing Tuesday on what Congress should do to reduce theimpact of flood insurance rate increases, some of them exponential,imposed by a 2012 law that will go into effect next year was likewatching two worlds collide.

On the one hand, a representative of a Louisiana-based citizensgroup testified that allowing the rate hikes to go into effect asmandated, would be “economically unwise and morally unjust.”

And, the politically powerful National Association of Realtorssaid “implementation of the law has proven complicated anddifficult to implement.”

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“Only the first round of rate changes have taken effect andalready, property owners and Realtors across the country arereporting dramatic increases well beyond what was imagined andcertainly beyond congressional intent,” said Maurice Veissi, NAR2012 president.

Veissi voiced support for legislation pending in Congress thatwould delay the increases, and, in the interim, called on theFederal Emergency Management Agency, which administers the NationalFlood Insurance Program, to convene a “national summit with keystakeholders to develop a longer-term affordability solution.

“We believe FEMA already has the ample authority under currentlaw to begin the discussion and should not wait for Congress,”Veissi said.

“We stand ready to work with you and the administration to bringclarity to housing markets subject to the Biggert-Waters reforms,”Veissi said.

On the other hand, Rep. Randy Neugebauer, R-Texas, chairman ofthe Subcommittee on Housing and Insurance of the House FinancialServices Committee, said there “has been a lot ofmisunderstanding surrounding the implementation” of the law, and“homeowners are confused and, in some cases, scared aboutpotential rate increases.”

For instance, Neugebauer said the committee has looked intocomplaints about exorbitant flood ratesfor policyholders who have been re-mapped, where premiums arebelieved to increase because of Sec. 207 of the Biggert-WatersAct.

He said FEMA has not made final determinations onthese “Sec. 207 properties – and in many cases maps are still twoyears away from being approved by local communitiesand finalized by FEMA.”

Moreover, Neugebauer said, after more than a decade inCongress, “if I have learned anything, it is thatthe federal government does a terrible job ofunderwriting and pricing risk.

“And that has very real consequences for taxpayers who end upfooting the bill for the government's failures,” Neugebauersaid.

The first witness at the hearing, Craig Fugate, FEMAadministrator, testified that, “by statute and design, the NFIP wasnot actuarially sound.”

He said the NFIP collects more than $3.5 billion in premiumsannually, but estimates that an additional $1.5 billion is neededfrom subsidized homeowners to make the program solvent. He saidthat because of subsidies and such catastrophic flooding events asHurricane Katrina and Superstorm Sandy, the program now owes thefederal government $24 billion.

He said that the 2012 law requires changes to all of the majorcomponents of the program, including flood insurance, flood hazardmapping, grants, and the management of flood plains.

Under questioning from Neugebauer, Fugate said the NFIP cannotwithstand another Katrina/Sandy event without additional borrowing.He said it has only $6.4 billion left to borrow before asking formore borrowing authority.

“Even with the increases in premiums, you are not going to seethe NFIF debt retired anytime soon,” Fugate said in response to aquestion from Neugebauer.

In outlining the policy and premium changes, Fugate said, “Eachproperty is different. Some policyholders may reach their true riskrate after less than five years of increases, while otherpolicyholder increases may go beyond five years to get to the fullrisk rate required by the new law.”

But Michael Hecht, president and CEO of Greater New Orleans Inc.painted a different picture. Hecht said he was testifying not onlyon behalf of GNO, but also for the Coalition for Sustainable FloodInsurance, which now represents nearly 200 business and tradeassociations and local governments in 27 states.

“We are dealing with a problem of profound unintendedconsequences,” Hecht said.

He said a “three-way confluence of the B-W Act, incomplete FEMAmaps that artificially inflate risk and questionable actuarialcalculations, has led to premium increases of up to 3,000% andmore, “including massive rate increases for policyholders who havebuilt as the government told them and have no history offlooding.”

Hecht said, “These clearly unaffordable premium increases arenot limited to properties with severe repetitive loss and wealthybeachfront homes. Primary residences of all income levels that havenever flooded are being negatively impacted.”

Moreover, homebuilders are “extremely concerned about thedramatic flood insurance premium rate increases that are nowoccurring as well as the negative impact these increases are havingon the sale, construction, and remodeling of homes in affectedcommunities,” according to Barry Rutenberg, a home builder fromFlorida. He testified on behalf of the National Association of HomeBuilders.