Homeowner Flood Insurance Affordability Act of 2013 -- Motion To Proceed

Floor Speech

BREAK IN TRANSCRIPT

Mr. President, I have come to the floor to talk about the Homeowner Flood Insurance Affordability Act. This bill is a bill that is designed to fix the damage that has been done by the Biggert-Waters Act, and this damage is extensive. This bill would freeze dramatic rate hikes, and these rate hikes have several impacts.

We have, of course, the impact on families who currently have flood insurance who will be paying much higher levels than they bargained for when they bought their home and may not be able to afford those much higher levels, raising questions about their ability to stay in those homes.

We have the impact on commercial enterprises and the fact that now that they are paying higher rates, they may not feel they can add on to their business in that location.

Then we have the impact, of course, on selling your property, whether you are a homeowner or you are a business, because the folks who might be buying might have to jump to a full rate that would be many times--in some cases 10 times--the price the current owner is paying, and when that happens the property becomes unaffordable and, therefore, the value that one has in their home or business drops dramatically.

All of this is of great concern, and we need to reverse the features of Biggert-Waters that are causing this economic havoc.

This bill comes out of discussions that were in my Subcommittee on Economic Policy several months ago. This discussion is now led by Senator Menendez, and he has been ably assisted and partnered with Senator Mary Landrieu and Senator Isakson and Senator Vitter and I compliment them all for being vocal advocates and instrumental in helping to move this bill forward.

The Biggert-Waters Act, while well intentioned, is creating massive burdens for our middle-class homeowners in Oregon and certainly across the Nation. Flooding is something of an equal opportunity disaster. For some, it is the coastlines. For others, it is broad flood plains along major rivers. For others, it is narrow valleys and flash floods. But in all of these situations, the common impact is dramatic devastation.

Something is very wrong though when families are more worried about dramatic spikes in their flood insurance premiums than they are worried about dramatic floods, and that is where my Oregon families are right now. I wish to share a letter from Kelly. She lives in Tigard. She says, in her own words, she is ``a middle class, single mother currently working to get [her] daughter through college.''

She bought her home 13 years ago to provide stability for her daughter. This is a goal of so many parents, to have a piece of the American dream, to have the stability that goes with home ownership, to have the equity that you build in your home as a financial reservoir with which to assist your children going forward in life.

She thought about selling a few years ago but decided to stay in that house and keep that financial foundation. But now, with Biggert-Waters going into effect, she has been caught between two bad choices. If she stays in her home, her flood insurance rates will go up precipitously, making her home increasingly unaffordable and squeezing an already tight budget. But should she try to sell, the new owner will face annual flood insurance premiums of $15,000 or more, making her home completely unaffordable for middle-class buyers.

Keep this in mind: For every $1,000 a buyer pays in flood insurance per year, the value of a home drops by about $20,000. So if the flood insurance is $15,000, we are talking about a value of a home dropping $300,000. Many middle-class homes in Oregon are not priced at $300,000. They might be valued at $200,000 or $220,000 or $250,000 or, in more rural areas, $150,000 or $175,000. So we can wipe out the complete value of a home and certainly easily wipe out the equity a homeowner has built over a number of years. Essentially, you have to give the home away. That makes no sense.

To read from Kelly's letter, she says:

Here is where I see a problem. There is an old saying, ``you can't get blood from a stone.''

She continues:

I know I am not alone in my predicament of barely getting by financially.

Middle income folks like me are squeezed from all sides. .....

While living expenses rise every year, our income generally does not raise enough to make up for it. .....

We tighten our belts and wait for better times. So, the problem here is, we can't afford to pay these, much higher rates. We just don't have the money.

She continues in her analysis:

There are options, of course. We can come up with many 10's of thousands of dollars to raise our houses up and make them flood friendly. .....

But wait--we don't have 10's of thousands of dollars. And, we can't sell--that's the beauty here. Who will buy a small, middle income type home that has a flood insurance bill annually of 15-30k [a year]?

She continues:

So what will we do, the over 1 million homeowners in this situation? To our utter frustration and humiliation, many of us have no choice but to walk away. .....

Whatever the attitudes about us are, most of us are good Americans who believe in paying our debts. We have worked hard our entire lives, and asked for little or no help along the way.

This will crush us, and since we don't have the money to give, there is no benefit to be had.

That is how she concludes her letter: ``This will crush us. ..... '' She is right. It will crush her family. It will crush millions of families across this country. It will include foreclosures. It will include equity wiped out. It will result in families having to walk away from their home and hope they are not pursued by their mortgage company that will be unable to sell the home on a secondary market for the debt owed and, therefore, could pursue the owners.

It is wrong and counterproductive to squeeze middle-class homeowners such as Kelly when it will only result in more foreclosures or families trapped in their homes unable to sell them.

Making flood insurance more solvent is a laudable goal, but it is one we have to approach in a manner that involves fairness over time. Achieving solvency by putting a huge burden, a huge financial shock on the backs of our middle-class families is not just wrong, it is a financial disaster that is unfolding now and will continue to unfold across this country.

We cannot get to solvency by asking families to pay sums they simply do not have or, as Kelly said, ``You can't get blood from a stone.''

We need to immediately stop these dramatic rate hikes for our homeowners and our businesses while FEMA goes back to the drawing board to figure out how to make this program affordable and effective for our middle-class families.

That is exactly what this bill does. This bill has several important provisions that help ensure affordability and fairness for our middle-class families.

The first is it delays implementation of flood insurance rate increases. It does so on primary residences and on businesses until FEMA can complete an affordability study, propose regulations to address the problem of affordability, and give Congress time to weigh in.

Second, unlike Biggert-Waters, the bill ensures that FEMA will truly have the funding they need to complete a comprehensive affordability study.

Third, this bill takes on a catch-22 in the current system, which is that when homeowners face unaffordable rates that they think are inaccurate, they have to pay out of their pocket for a flood map appeal to prove that their premiums should be lowered. So when someone else makes a mistake, they have to pay for that mistake, and that is wrong.

The studies necessary for an appeal can cost between $500 and $2,000. It is a prohibitive cost for many families to undertake. This bill ensures that any homeowner who can successfully appeal a flood map finding will be reimbursed by FEMA for their expense, making the system fairer for the homeowner and giving FEMA an added incentive to get it right.

Finally, this bill does something very important in creating a flood insurance rate map advocate within FEMA, someone to educate and advocate for homeowners. One of the complaints my office has heard is that FEMA has not been responsive to homeowners' concerns or questions about changes in their policy.

It creates this position. An advocate will do several things. The advocate will educate policyholders about their flood risks and their options in choosing a policy. The advocate will assist those who believe a flood map is wrong and assist them through the appeal process. The advocate will improve outreach and coordination with local officials, community leaders, and Congress.

My colleagues Senators HOEVEN and HEITKAMP have also done great work on this bill to ensure that homeowners in certain communities are not hit by unfair rules on how their basements impact a flood policy.

I would like to address one other issue that is not in this bill that hopefully I will be able to offer an amendment on; that is, protection for consumers whose policies are purchased by their mortgage servicer or their bank rather than by themselves. This is the issue of predatory force-placed premiums.

Let me explain. Let's say, for example, that you are notified by your servicer that they have reviewed the records and they now consider you to be in a flood plain they had not noticed before and you have to get flood insurance. But that flood insurance, unsubsidized, is so expensive you cannot afford it. So then the servicer says: Well, we are going to put on flood insurance for you. The rate might be 5 to 10 times the market rate. In other words, the homeowner who already cannot afford flood insurance is gouged by predatory premiums on force-placed insurance.

Let's consider that perhaps you had a transition in your family. Maybe you have one partner paying the bills and another partner takes it over while the first partner is sick and you miss the fact that your annual premium was due on your flood insurance. So what happens? That lapse can trigger much higher rates that you cannot afford. Then suddenly you are in the situation of force-placed insurance.

How about if new maps are issued. The new maps now put you into a 100-year flood plain that you were not in previously. It is not that the geography changed; it is that a different set of engineers, doing a different study, different assumptions about where the rain will fail, which creek will swell the quickest, puts you into this 100-year flood plain.

So now what are you going to do? You are going to be in this situation. You cannot afford that insurance, that newly placed requirement for insurance, so the servicer or bank puts it on for you. Well, they should put it in at a fair market rate, not at a rate which is 5 to 10 times the fair market rate and which is designed to gouge.

I have an amendment that addresses this by saying the servicers or banks cannot take fees--or, as some would say, ``kickbacks''--for placing this insurance and therefore have an incentive to do a nonmarket rate policy that is 5 or 10 times higher than the actual market rate.

This is a significant problem in force-placed home insurance. Certainly, we do not need to add to this problem by allowing predatory premiums on force-placed policies in the realm of flood insurance. I encourage my colleagues on both sides of the aisle to take a look at this issue, to support banning the anticompetitive features of the market that have led to these predatory premiums on force-placed flood insurance.

In closing, I again thank my colleagues who have worked so hard. This is an important issue, an incredibly important issue for families across Oregon. Let's stop these dramatic rate hikes. Let's work together for an affordable flood insurance program that will be effective and fair for all Americans.

I yield the floor.

BREAK IN TRANSCRIPT

Source