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Congress fumbles the flood fix

By Jay MacDonald · Bankrate.com
Tuesday, March 18, 2014
Posted: 6 am ET

In all likelihood, by the time you read this, President Barack Obama will have put his John Hancock to the bipartisan Homeowner Flood Insurance Affordability Act of 2013, also known as the "Stop This Constant Biggert-Waters Headache Now" Act.

Cheers will immediately erupt, though not on the Jersey Shore, Texas Gulf Coast or in my neighborhood of Tampa Bay.

No, the huzzahs and high-fives will be entirely confined to Capitol Hill, as our estranged lawmakers celebrate the Herculean task of having committed a compromise in broad daylight.

A sandbag against rate shocks

True to its nature, the much-anticipated flood insurance reform fix addresses the immediate bellyaching of coastal homeowners, for whom the skyrocketing cost of flood insurance has become a greater threat than flooding itself. But it leaves other, more submerged aspects of Biggert-Waters intact.

On the positive side, the flood fix reinstates "grandfathered" rate subsidies for older homes built before their community flood rating was determined by the National Flood Insurance Program, or NFIP.

It also stops the sudden forfeiture of subsidized rates upon the sale of a home, an unintended Biggert-Waters surprise that sent some flood rates soaring twentyfold to full-risk levels, shocking homebuyers and poisoning coastal housing markets. The fix even refunds new homebuyers for what they overpaid.

Rates will keep rising

Unfortunately, this fix of a fix makes little change to the rising underlying rates themselves that may swamp some homeowners in order to rescue NFIP from the $24 billion debt it incurred, primarily from Hurricane Katrina and Superstorm Sandy.

The fix moderates the annual rate increase limit for affected homes from 20 percent to 18 percent, but homeowners of modest means or on fixed incomes may still have difficulty keeping up. My question for Congress is: What are these homeowners supposed to do?

The fix-of-a-fix act also offers no relief to owners of grandfathered second homes and commercial properties, who will still face the likelihood of sticker shock if they sell.

Impact will be monitored

Make no mistake: This compromise was forged in the House, leaving the Senate -- which had previously passed a more far-reaching flood fix -- to either accept what it could get out of that parsimonious body or allow the Biggert-Waters fallout to continue unchecked. My guess is Obama is less than thrilled with the final result as well.

Buried in the bill is language that requires the Federal Emergency Management Agency, which oversees NFIP, to report to Congress the impact of these rate increases on small businesses, nonprofits, houses of worship and yes, low-income homeowners. If flood rate hikes are forcing them out, FEMA is officially on the hook to recommend to Congress a course of action within three months.

Let's hope FEMA heeds these requirements so coastal America's most vulnerable don't get lost in the flood fix shuffle.

Follow me on Twitter: @omnisaurus.

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