WASHINGTON (AP) — 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 says it essentially unravels reforms designed to make the much-criticized flood insurance program that 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 are caught in a Catch-22: facing rates that, once phased in, they won't be able to afford. But because of the higher insurance rates, they face having to sell their properties at distressed prices.
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 that sold — at 25 percent 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 from the scheduled 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 percent 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, Massachusetts, 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. He warned of the potential for another mortgage crisis.
"Some people are going to choose to walk away from their homes — or they're going to have to walk away from their homes — because they can't afford the flood insurance," Richmond said. "Then that property is going to go back to the bank, which is going to have a hard time selling because people are not going to pay $5,000 or $6,000 a year for flood insurance."
The federal flood insurance program, which was established in 1968, has incurred big losses, most recently with Superstorm Sandy in 2012.
The program helps 5.6 million policyholders, 20 percent of whom receive subsidized policies for older homes built before communities joined the flood insurance program.
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 get to keep their subsidies but can't pass them on when selling their homes. People who buy their home after Biggert-Waters 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 flood 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 can face much bigger premium jumps in cases in which premiums are going up several fold.
Other homeowners, whose premiums subsidize those with grandfathered rates, could see their rates go down.