Flood insurance bill set to stem rising tide of bankruptcies – The Hill | Vette Leader

Americans with homes repeatedly swamped by extreme weather events could soon have the federal government buy their homes under a new bill introduced Thursday by Rep. Sean Casten (D-Ill.).

The bill would allow the National Flood Insurance Program (NFIP), the state’s flood insurer of last resort, to buy homes and areas that are considered unacceptable instead of paying continually to repair them.

“You don’t oblige people to move, but you say, you know … if you want to take advantage of the NFIP program, we’re going to structure it more towards an acquisition than a rebuild,” Casten said.

Casten, who worked with Rep. Earl Blumenauer (D-Ore.) on the bill, says it aims to solve two problems: one serious, the other potentially catastrophic.

There is a more immediate threat of insolvency for the NFIP, which is suffering from the weight of the increasingly frequent and severe flood events. Congress paid $16 billion to save the program in 2018, and Congress proposed another $20 billion for 2021.

This problem only grows. Flood damage could increase by more than 25 percent by 2050, putting another $8 billion at risk. And 14.6 million homes are at “significant” risk of flooding, according to data from the nonprofit First Street.

“Unfortunately, the national flood insurance program is not designed for the reality of this problem,” Blumenauer said in a statement.

Meanwhile, the country’s coasts will rise an average of 12 inches by mid-century — with Florida and the Gulf Coast facing even higher water levels, according to data from the National Oceanic and Atmospheric Association.

“Basically, that means if you build a house south of I-10 in Louisiana, if you build that house today, it’s going to be under water before you pay off a 30-year mortgage,” Casten told The Hill .

It’s not just a coastal problem: In Illinois alone, over 400,000 homes, 50,000 miles of roads, 35,000 commercial properties, 1,000 infrastructure facilities, and 2,400 social and community facilities are at risk of flooding, according to a national risk assessment published by nonprofit First Street.

Under the current system, the NFIP — which in much of the country is the only place where homeowners can purchase flood insurance — only makes buyouts as a last resort, and it can take up to 5 years for homeowners to receive payments.

In practice, this means that homeowners can simply repair or rebuild a damaged – or even totally destroyed – house in the same place.

“Except now because of the speed of climate change, you know that this property will be flooded again in the near future,” Casten said.

That means millions of properties that would most likely receive funding to rebuild under current policies are in areas where climate change is worsening.

“And then two years later it’s going to flood again, and a year later it’s going to flood again, and six months later it’s going to flood again,” Casten said.

“Because the frightening reality of climate change is that everything is not linear. It’s not ‘two, four, six’ — it’s ‘two, four, eight,'” he added. “And so you see this tremendous acceleration.”

Under current guidelines, that means growing liability for U.S. taxpayers — and little recourse for homeowners themselves. Even if they’re authorized for a buyout, they’re still responsible for 10 percent of housing costs — meaning they’re stuck if they cannot raise the money.

“Many flood-damaged homeowners have chosen not to use the voluntary floodplain buy-out program because assistance with buying flood-prone properties is too slow — with some buy-outs taking up to five years to complete,” Kurt Woolford, executive director of the Lake County Stormwater Management of Illinois Commission said in a statement.

Casten and Blumenauer’s bill would prompt the federal government to take on all housing costs much more quickly, moving homeowners to new homes above the danger zone — and converting the old property to spongy, flood-fighting wetlands.

These reforms take a small step toward addressing the second, more catastrophic risk — which prompted House Financial Services Committee Chair Maxine Waters to direct members to revise the NFIP first, Casten said. The Hill reached out to Waters for comment on the bill.

The concern is that a growing wave of uninsured losses could spread across the financial system, destroying small and medium-sized banks and pension funds. There have been over 5.2 trillion in losses since 1980 – 70 percent of which were uninsured, according to a speech by Federal Reserve Governor Lael Brainard in February 2021.

Big investors like Blackstone and Bank of America and reinsurers like Swiss Re are retreating from vulnerable lowland and coastal properties while they sell those properties to less sophisticated investors — relying on the NFIP to serve as a no-cost hedge, added Casten.

That creates the potential for a domino cascade of bankruptcies analogous to the savings and credit crisis of the 1980s that led to community banks and pension funds being wiped out across the country.

“You don’t see the Blackstones coming in and buying,” Casten said. Flood-prone properties are instead outsourced to groups like “You know, the local Cleveland, Ohio firefighters’ pension fund.”

With the Federal Reserve showing little sign of changing its lending standards related to climate change — especially after the collapse of climate risk expert Sarah Bloom Raskin’s nomination in March — reforms to the NFIP are an important step in bolstering the financial bulwarks protecting American taxpayer Casten said.

The worsening extent and increasing frequency of flooding, which risks rendering large parts of the coast uninhabitable, “sucks, to put it crudely,” Casten told The Hill. It could potentially force millions to make politically difficult and agonizing decisions to leave beloved landscapes, neighborhoods and communities.

“But this isn’t about whether or not we can bury our heads in the sand and the problems go away,” he added. “The problem is only getting worse.”

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