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The Biggert-Waters Act

Posted 2:54 PM by

I spent a couple of hours last night at Congresswoman Brook’s office in Carmel with a group of realtors and neighborhood leaders discussing the Biggert-Waters Flood Insurance Act.  If you’ve never heard of it, you probably don’t live in an area designated as a flood plain.  Biggert-Waters was intended to stem the bleeding  (now around $650 billion) from disaster relief due to flooding by eliminating subsidies to older homes flood insurance premiums.


The effect of that Act, which is just starting to be felt locally, is to raise flood insurance premiums, sometimes, as was noted anecdotally last night, by as much as 500%.  Flood insurance is required by mortgage companies (in addition to regular insurance) , on properties in flood plains, assuming you have a mortgage, and, if you don’t have it, but do have a mortgage, the mortgage lender can purchase it, and bill you for it.


The Act, which became effective in October, is already effecting home sales in flood plain areas, not only locally, but state, and nationwide.  Realtors who attended last night’s meeting told us that so far there have been about nine sales of property that would be impacted by the bill.  Seven were cash sales (meaning there’s no mortgage, so no insurance required), one that’s in the process of fighting their designation of being in a flood plain, and one more, wherein the purchaser announced they so loved the house that they were willing to pay the additional $10,000 annual flood insurance premium.  It’s hard to estimate, because they won’t be recorded, how many potential home sales will simply fall though because potential buyers won’t love the house enough to pay an additional $10,000 annually.  


Some homeowners, who weren’t planning to sell, simply won’t be able to afford flood insurance.  We were told, again anecdotally, that right now, mortgage companies aren’t foreclosing on these homes, but most are adding the new premiums on to their escrow bills, which should mean, in fairly short order, that whatever equity the homeowner had in the home will disappear, and the mortgage company will end up owning the home anyway.


As previously noted, this is causing a national uproar, and there are Bills in congress proposing to do something about it, including, interestingly enough, one from the author of the original Act.  We were told that these Bills, which would send the program back for an ‘affordability’ review and delay implementation for at least four years, center around the fact that changing the Bill would be considered a ‘spending’ bill, thus requiring congress, under a self-imposed restriction, to come up with savings, elsewhere, equal to the costs of the changes, and it’s a pretty expensive bill.  We were also told that changes are going to require, to get passed, that a majority of both parties support the changes, and there’s little the two parties agree upon right now.


Locally, there’s some prospect that this will eventually  (and eventually could mean a decade) be resolved by the completion of the White River flood wall, which as noted in previous posts, exists, mostly, to just north of the Riviera Club.   There seems to be a congealing plan to extend the wall south along the existing towpath, to a point just south of Butler’s campus where it would tie in to higher ground and presumably eliminate the Washington Township portion of the flood plain.  I say probably because, as noted below, the Corps., which builds, and FEMA, which designates flood areas, really don’t communicate.  There’s still some argument about who  (the Corps. or the City) would pay for what, but it’s resolvable if cooler minds prevail.  That alternative, also noted previously, would eliminate the silly proposals to build mechanical walls across the City’s water supply.


What’s also interesting is that the northernmost areas within the floodplain, are probably already protected by what’s already been built (assuming there’s not another 1913 flood wherein we’d flood from Iowa to Pennsylvania, irrespective of our wall) but it has no effect on current insurance problems because, oddly, the Corps. and FEMA, the two Federal agencies which are always mentioned together in discussions of these issues, simply don’t ever work together.  Meanwhile, my basement, which isn’t in or near a floodplain, has flooded more recently than Warliegh.


Because it’s a national problem, I’d like to talk a little about this issue in a broader perspective.  Flood insurance probably ought to carry its own weight, but the larger problem is that American’s seem to continue to build where they shouldn’t be building.  Oceans are lovely, but that doesn’t mean you should need to live next to one.  Mosly, flood insurance ought to serve as a major deterrent to new construction in these areas where billions get spent on a regular basis repairing damage that was anticipated and predictable.  My grandparents had an uninsulated shack on the Jersey Shore in the early 1900’s that was expected to be damaged fairly often.  It’s now part of a community of permanent homes.  On the other side of my family, another set of grandparents had an equally disposable shack on the shore of Lake Michigan, also now a part of a permanent community of year round homes.  But, both are entirely different than areas of the Midwest which last flooded when the Cubs were in the World Series.


New Orleans, except to keep the Mississippi delta open, probably shouldn’t have been rebuilt in its original location.  Rocky Ripple shouldn’t have been allowed to develop beyond its original incarnation as prime farmland.  Our shorelines ought to be destinations, not residences.   Yet we protect our bad decisions of the past because they did develop, and the scale of injury, once they were developed, is such that, unless we can really protect the injuries from recurring over an over again, we ought to prevent.


Insurance companies have traditionally created risk pools based upon reasonable likelihood of occurrences.  Flood insurance programs ought, but aren’t, be made to operate the same way.


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