Senate Passes Bill to Delay Flood Insurance Hikes

The Senate has easily passed a bill to delay premium hikes for years for hundreds of thousands of homeowners who buy flood insurance from the federal government.

Thursday's sweeping 67-32 vote reflects widespread concern about changes enacted two years ago to shore up the program's finances. The changes are in many cases producing unexpected, sky-high insurance rates that are unaffordable for many homeowners in flood-prone areas whose insurance has historically been subsidized by the government and other policyholders.

The bill was muscled through the Senate after angry constituents, the real estate and homebuilder lobbies inundated lawmakers with complaints.

Opponents of the bill say it unravels long-sought reforms of the flood insurance program, which has required numerous taxpayer bailouts and owes $24 billion to the Treasury Department as a result.

The bill would delay for up to four years huge premium increases that are supposed to phase in next year and beyond under new and updated government flood maps. It also would allow homeowners to pass below-cost policies on to people who buy their homes. People who have recently bought homes and face sharp, immediate jumps in their premiums would see those increases rolled back.

The measure faces a rockier climb in the GOP-controlled House, where Speaker John Boehner, R-Ohio, and Financial Services Committee Chairman Jeb Hensarling, R-Texas, prefer a more modest approach. But allies of delaying the rate hikes demonstrated in a vote last year that they have a working majority in the House.

At issue is the government-run flood insurance program, in which taxpayers and other homeowners subsidize below-risk rates paid on older homes in both coastal areas threatened by hurricanes and big storms and inland areas near flood-prone rivers. A sweeping overhaul that passed virtually unanimously 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 says it essentially unravels reforms to the much-criticized flood insurance program that put taxpayers on the hook for $24 billion in losses by subsidizing ownership in risky areas. The changes were aimed at making the program more financially sound and putting a stop to homeowners in less risky areas essentially subsidizing below-market insurance rates for homeowners in locales more at risk of flooding. The Federal Emergency Management Agency, supporters of the legislation say, is doing a poor job of producing new, accurate flood maps.

"The rates that would be imposed if the law doesn't get changed will be impossible -- not just impractical -- impossible," said Sen. Roger Wicker, R-Miss. "It's being implemented with faulty data and we need to go back to the drawing board."

However, projections of the new rates have caused anxiety among hundreds of thousands of homeowners. The loss of subsidies when homes are sold has put a damper on the real estate market and threatened home values. Some homeowners are snagged in a Catch-22. They face rates that, once phased in, they won't be able to afford. But because of the higher insurance rates, they also 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 $901 a year for $100,000 of coverage. They were hit with a $4,200 bill now and tell 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 would get relief under the Senate bill.

Hours before the final vote, the Senate by an almost 2-1 margin rejected an alternative plan by Sen. Pat Toomey, R-Pa., that would have capped the premium increases on most properties -- including homes being sold -- at 25 percent per year until the premium reflected the true flood risk. Ten Republicans sided with unanimous Democrats to reject the idea.

Supporters say the bill buys time for the government to conduct a study of the affordability of flood insurance and for lawmakers to devise ways to help poorer people and the working class keep their homes.

The legislation is a win for coastal state Democrats like Sens. Mary Landrieu of Louisiana, Bill Nelson of Florida and Bob Menendez of New Jersey, who have formed an unstoppable coalition with Republicans representing coastal areas and the Mississippi basin like Sen. John Hoeven of North Dakota.

The program helps 5.6 million policyholders, 20 percent of whom receive subsidized coverage for older homes built before communities joined the flood insurance program. However, 1.7 million owners of second homes who purchased their properties before the 2012 overhaul will find no relief in the Senate bill. Critics say the premium hikes threaten the viability of older beachfront towns.

Under the 2012 changes, owners of second homes, frequently flooded properties and businesses in flood areas would gradually lose their subsidies and pay 25 percent more a year until they reach an actuarially sound rate. Others can keep their subsidies but can't pass them on when selling their homes. People who bought their homes after the legislation passed in July 2012 are subject to immediate jumps to actuarially sound premiums.

The 2012 law also phases out below-market rates for owners of grandfathered properties -- those that were built in compliance with earlier flood risk estimates but whose risks have increased under new maps. Those homeowners would see their flood risks re-estimated and would see higher rates phased in over five years, so they could face premium jumps that are severalfold.

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