A House hearing Tuesday on what Congress should do to reduce the impact of flood insurance rate increases, some of them exponential, imposed by a 2012 law that will go into effect next year was like watching two worlds collide.
On the one hand, a representative of a Louisiana-based citizens group testified that allowing the rate hikes to go into effect as mandated, would be “economically unwise and morally unjust.”
And, the politically powerful National Association of Realtors said “implementation of the law has proven complicated and difficult to implement.”
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“Only the first round of rate changes have taken effect and already, property owners and Realtors across the country are reporting dramatic increases well beyond what was imagined and certainly beyond congressional intent,” said Maurice Veissi, NAR 2012 president.
Veissi voiced support for legislation pending in Congress that would delay the increases, and, in the interim, called on the Federal Emergency Management Agency, which administers the National Flood Insurance Program, to convene a “national summit with key stakeholders to develop a longer-term affordability solution.
“We believe FEMA already has the ample authority under current law to begin the discussion and should not wait for Congress,” Veissi said.
“We stand ready to work with you and the administration to bring clarity to housing markets subject to the Biggert-Waters reforms,” Veissi said.
On the other hand, Rep. Randy Neugebauer, R-Texas, chairman of the Subcommittee on Housing and Insurance of the House Financial Services Committee, said there “has been a lot of misunderstanding surrounding the implementation” of the law, and “homeowners are confused and, in some cases, scared about potential rate increases.”
For instance, Neugebauer said the committee has looked into complaints about exorbitant flood rates for policyholders who have been re-mapped, where premiums are believed to increase because of Sec. 207 of the Biggert-Waters Act.
He said FEMA has not made final determinations on these “Sec. 207 properties – and in many cases maps are still two years away from being approved by local communities and finalized by FEMA.”
Moreover, Neugebauer said, after more than a decade in Congress, “if I have learned anything, it is that the federal government does a terrible job of underwriting and pricing risk.
“And that has very real consequences for taxpayers who end up footing the bill for the government’s failures,” Neugebauer said.
The first witness at the hearing, Craig Fugate, FEMA administrator, testified that, “by statute and design, the NFIP was not actuarially sound.”
He said the NFIP collects more than $3.5 billion in premiums annually, but estimates that an additional $1.5 billion is needed from subsidized homeowners to make the program solvent. He said that because of subsidies and such catastrophic flooding events as Hurricane Katrina and Superstorm Sandy, the program now owes the federal government $24 billion.
He said that the 2012 law requires changes to all of the major components of the program, including flood insurance, flood hazard mapping, grants, and the management of flood plains.
Under questioning from Neugebauer, Fugate said the NFIP cannot withstand another Katrina/Sandy event without additional borrowing. He said it has only $6.4 billion left to borrow before asking for more borrowing authority.
“Even with the increases in premiums, you are not going to see the NFIF debt retired anytime soon,” Fugate said in response to a question from Neugebauer.
In outlining the policy and premium changes, Fugate said, “Each property is different. Some policyholders may reach their true risk rate after less than five years of increases, while other policyholder increases may go beyond five years to get to the full risk 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 only on behalf of GNO, but also for the Coalition for Sustainable Flood Insurance, which now represents nearly 200 business and trade associations and local governments in 27 states.
“We are dealing with a problem of profound unintended consequences,” Hecht said.
He said a “three-way confluence of the B-W Act, incomplete FEMA maps that artificially inflate risk and questionable actuarial calculations, has led to premium increases of up to 3,000% and more, “including massive rate increases for policyholders who have built as the government told them and have no history of flooding.”
Hecht said, “These clearly unaffordable premium increases are not limited to properties with severe repetitive loss and wealthy beachfront homes. Primary residences of all income levels that have never flooded are being negatively impacted.”
Moreover, homebuilders are “extremely concerned about the dramatic flood insurance premium rate increases that are now occurring as well as the negative impact these increases are having on the sale, construction, and remodeling of homes in affected communities,” according to Barry Rutenberg, a home builder from Florida. He testified on behalf of the National Association of Home Builders.