Senate considers delaying increase in flood insurance rates and other parts of 2012 overhaul

WASHINGTON – Hundreds of thousands of homeowners would get a reprieve from higher flood insurance premiums under legislation speeding through the Senate, powered by coastal lawmakers telling horror stories of people at risk of losing their homes.

The bill, which is on track to win Senate passage on Thursday, faces a rockier road in the House, where a more modest plan is being developed to ease the impact of Congress’s overhaul of the federal flood insurance program two years ago.

The legislation would delay for up to four years huge premium increases now set to phase in next year under updated government flood maps. It also would allow homeowners with subsidized insurance policies to pass them on to people who buy their homes.

The White House is cool to the measure, but it has not threatened a veto.

The sweeping overhaul passed in 2012 was designed to make the federal flood insurance program more financially stable and bring insurance rates more in line with the real risk of flooding.

Opponents of the new legislation say it essentially unravels reforms to the much-criticized flood insurance program that has put taxpayers on the hook for $24 billion in losses by encouraging building in risky areas. The reforms were aimed at making the program more financially sound and to quit requiring homeowners in less risky areas to essentially subsidize below-market insurance rates for homeowners in locales more at risk of flooding.

“This passed unanimously out of the Banking Committee in 2011 and we’re already undoing it,” griped Sen. Bob Corker, R-Tenn. “It’s just so depressing.”

However, projections of what the new rates will be have caused panic among hundreds of thousands living in low-lying coastal areas and near the banks of rivers and their tributaries subject to flooding. The loss of subsidies when homes are sold has put a damper on the real estate market and threatened home values. Some homeowners face a Catch-22: Once phased in, the rates are beyond their finances but, because of the higher insurance rates, they face having to sell their properties at distressed prices.

For instance, a North Dakota couple, Allison and Kyle Skari, bought a home in Grafton a year ago and initially paid was $901 a year for $100,000 of coverage. They were hit with a $4,200 bill and told Sen. Heidi Heitkamp, D-N.D., that they never would have bought the home. They’re ineligible for a phase-in of the higher premium because they bought after the 2012 law was passed — but they would get relief under the Senate bill.

The Senate measure to delay some of the changes is likely to pass after votes on a host of amendments. One, by Sen. Pat Toomey, R-Pa., would proceed with the premium increases, but cap them on most properties — including homes being sold — at 25 per cent per year until the premium reflects the true flood risk. If faces almost certain rejection, though Toomey said it lines up with what the Obama administration wants. The administration said in a statement it “strongly supports a phased transition to actuarially sound flood insurance rates.”

Backers of the bill say the implementation of the reforms has played out in unintended ways, especially for people who face large premium increases over the next five years under new flood maps, some of which are incorrect or don’t account for local flood mitigation efforts.

Congress has already stepped in to delay premium increases scheduled for later this year with a provision tucked into this month’s government-wide funding bill. That provision, in effect, guarantees a few months relief to those facing increases late this year because of new maps but doesn’t allow people to pass below-market rates on to people who buy their homes.

There’s no relief in the offing for 1.7 million owners of second homes, who are not covered by the Senate bill and who face annual 25 per cent increases — provided they owned their home before Congress overhauled the program in 2012. They say the premium hikes threaten the viability of older beachfront towns.

The relatively few people who bought homes after the law was enacted have to pay market rates right away. Owners of older oceanfront vacation homes in places like Cape Cod report getting socked with enormous premiums. Dawn Karol, who bought a cottage in Yarmouth, Mass., in November 2012 for $450,000, was sent an initial premium notice of $65,000.

“This flood premium renders my cottage unmarketable as well as unaffordable,” Karol said.

In the House, Speaker John Boehner, R-Ohio, and Financial Services Chairman Jeb Hensarling, R-Texas, are considering a far more modest measure that would leave more of the 2012 overhaul in place.

Democratic Rep. Cedric Richmond, who represents New Orleans, said there’s sweeping support in the House behind the Senate measure if GOP leaders would allow a vote.