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Homeowners with flood insurance face sticker shock

– It is the question that seems to be at the heart of every political issue of the last five years: How much should taxpayers subsidize lifestyle choices, and how much of the cost should people bear themselves?

But this time, the issue isn’t health care or income taxes.

Instead, the issue is flood insurance, and Congress appears to be changing its mind on the tough stance it took just a year-and-a-half ago.

Begun in 1968, the National Flood Insurance Program sells flood insurance – heavily subsidized by the federal government – through private insurers. But recent disasters have put the program $24 billion in debt and created strange bedfellows: Environmentalists say the federal subsidies mask the true cost of living in flood-prone areas; conservatives ask why private insurance policies are being subsidized by taxpayers.

So in 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which calls for flood insurance premiums to reflect the actual risk, the way lead-foot drivers pay more for car insurance.

“The initial thought was it’s time we quit subsidizing this,” said Rod Renkenberger, executive director of the Maumee River Basin Commission, a multicounty flood agency in northeast Indiana.

Then the bills started arriving. And flood insurance that had been between $400 and $700 a year was suddenly costing $2,000 to $4,000 a year.

Under Biggert-Waters, people who already had policies will see premiums increase 25 percent a year until their premium reflects their actual flood risk. But new policies get the full cost immediately.

At least, that was the plan.

Now, Congress – after hearing the outcry from policyholders and other interested parties – appears to have had a change of heart. On Jan. 30, the Senate voted 67-32 to delay premium increases for four years. Sen. Joe Donnelly, D-Ind., voted for the bill, while Sen. Dan Coats, R-Ind., opposed it.

“The flood insurance program already owes taxpayers $24 billion, and this bill only increases the instability of both the program and future flood insurance rates,” Coats said in a statement.

In the House, the effort to gut the law is being led by its original author, Rep. Maxine Waters, D-Calif.

Renkenberger said he understands both sides of the issue. The Maumee River Basin Commission works to get federal buyouts to remove homes from flood-prone areas, and Renkenberger has said the best way to prevent flood damage is not to build in areas where it floods.

But many homes were built in those areas before flood maps were even created.

“For structures built prior to any identification of flood risk, then it’s hard for me to not feel sorry for those folks, because they didn’t build those structures,” he said.

But for newer homes, Renkenberger and many others wonder why taxpayers should subsidize their desire to live where it floods.

“I think we do a pretty good job of saying these are areas that have been identified as flood-risk areas, so you don’t have the same compassion for those folks,” he said.

Pat Bryan, an agent for State Farm insurance, said he handles only a few flood insurance policies and hasn’t yet heard an outcry. Usually, he said, the issue is when new, more accurate flood-hazard maps are adopted and homeowners find themselves included or excluded from having to buy a policy.

But Laura Byerly, assistant vice president of mortgage lending at Midwest America Credit Union, said the changes are already affecting home sales.

Byerly said Midwest America has had a couple of cases in which people wanting to buy a house suffered sticker shock when they got the price of flood insurance. In some cases prices are so high it could affect whether the person would even get a mortgage.

“Part of the mortgage-qualifying process is you look at all their income and expenses, and other housing expenses are included,” Byerly said. “If you have someone going from what normally would have been a $400 or $800 policy going up to $4,000, that could affect whether they qualify for the mortgage or not.”

Renkenberger said he knows of at least one case where someone selling a house had a sale fall through because of the cost of a new flood insurance policy.

“The new buyer coming in was facing a $4,000 annual premium,” he said. “That house is not affordable anymore.”

In the House, Republicans twice beat back a move by Democrats to immediately vote on the version passed by the Senate, but the New Orleans Times-Picayune reported Thursday that Federal Emergency Management Agency officials, who oversee the National Flood Insurance program, said the phase-in of higher rates for some existing policy holders will now be delayed until at least October 2015.

dstockman@jg.net

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