Flood Insurance Bill Could Trigger Housing Crisis: Trade Groups

By Brandon Ross

House Republicans’ plan to reauthorize the National Flood Insurance Program (NFIP) could lead to unaffordable premiums and a foreclosure crisis, according to real estate agents and bankers.

The concerns are aimed at H.R. 2874, the 21st Century Flood Reform Act, introduced by Rep. Sean Duffy (R-Wis.), chairman of the House Financial Services Housing and Insurance Subcommittee. The bill would strip federal flood insurance eligibility from certain properties that flood repeatedly, some expensive properties, and new properties built in designated flood zones. The measure was approved by the full committee 30-26 on June 15, with all Democrats and one Republican opposed.

The bill “could lead to the same consumer confusion, sticker shock, and market disruptions experienced following the passage of the Biggert-Waters Act in 2012,” William E. Brown, president of the National Association of Realtors (NAR), told Bloomberg BNA in an email. “For that reason, it does not have our support.”

H.R. 2874 is part of a seven-bill lineup that the committee’s Republicans are planning to use to reauthorize and overhaul the NFIP, which expires Sept. 30. The committee will meet June 21 to mark up the other bills.

The NFIP is nearly $25 billion in debt to the Treasury, in large part because of its subsidies for properties in the flood-prone areas. Congress tried to push the program toward solvency in 2012 by mandating the raising of premiums to match the actuarial risk posed. Lawmakers faced backlash for the sharp rate hikes, however, and were forced to drastically slow the increases two years later through the Homeowner Flood Insurance Affordability Act of 2014 (Pub. L. No. 113-89). Some business groups are warning of a repeat scenario if Duffy’s bill, which aims to lower the burden on taxpayers, isn’t amended.

Democratic proposals to keep flood insurance affordable were rejected by the Republicans during markup, committee ranking member Maxine Waters (D-Calif.) said.

“The Duffy bill would restrict flood insurance coverage, increase costs, and open the door to cherry-picking by the private sector,” Waters said in a June 20 statement.

Duffy’s office didn’t respond to requests for comment on the criticism.

Foreclosure Crisis

Bankers expressed “grave concerns” over the Duffy proposal.

“As borrowers lose NFIP coverage, and especially if alternative private coverage is not available or affordable, these properties will lose value and the risk of abandonment and/or foreclosure increases dramatically,” the American Bankers Association (ABA) told full committee chairman Jeb Hensarling (R-Texas) and Waters in a letter before the markup.

“In some flood prone communities, this could lead to local or regional foreclosure crisis,” the ABA letter said.

The Chamber of Commerce had concerns about the overall series of bills.

"[T]he broader legislative package would attempt to force various consumers into trying to find coverage in a new, untested private market by eliminating their eligibility for coverage under the NFIP,” the Chamber said in a letter to Hensarling and Waters provided to Bloomberg BNA.

The NAR, ABA, and the Chamber all expressed support for various parts of the Republicans’ other NFIP bills.

To contact the reporter on this story: Brandon Ross in Washington at bross@bna.com

To contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

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