Bill Calls For Retroactive Flood Coverage
In the first of what is expected to be a number of proposals aimed at resolving the massive shortfall in flood insurance in the Gulf Coast a bill introduced in Congress would allow hundreds of thousands of homeowners to buy coverage retroactively under the National Flood Insurance Plan.
The proposal, introduced by Rep. Gene Taylor (D-MI), would allow those homeowners in Louisiana, Mississippi and Alabama whose property was destroyed or damaged by flooding caused by Hurricane Katrina to buy flood insurance under the federal plan in exchange for 10 years of premiums and a 5% payment.
Officials with the Federal Emergency Management Agency, which administers the NFIP, say only a small portion of the homes in the flooded areas had coverage under the federal plan-the only one that provides flood insurance for residences. As a result, there may be as many as 300,000 uninsured properties in those areas, leaving a major liability for credit unions, banks and other lenders.
But the Taylor bill proposal appears dead on arrival as 28 Democrats, but no Republicans, had signed on as co-sponsors last week, even as the Mississippi lawmaker was trying to convince Republican leaders, including Louisiana Rep. Richard Baker, Michael Oxley, chairman of the House Financial Services Committee, and Mississippi Senators Trent Lott and Thad Cochran, to try to enlist their critical support.
In addition several consumer groups came out opposed to the proposal as a bailout for insurance companies, which are currently battling in the courts over exclusion clauses in homeowners' policies over flooding.
CUNA was among the few to endorse the Taylor bill, noting the major liabilities that could be incurred by credit unions and other lenders if some kind of resolution is not approved by Congress. "Charles Elliott (president of the Mississippi CU Association) testified before Congress on the need for some kind of flood insurance assistance," said one CUNA lobbyist.
But the banking trade groups were hesitant to endorse the measure. For one thing, a large portion of the home mortgages in the affected areas are owned by Fannie Mae, Freddie Mac, Ginnie Mae or the Veterans Administration, and not their banks, according to several sources.
For another, it is still too soon to ascertain what kind of financial liabilities that will accrue from the massive hurricane.
One banking lobbyist noted that emergency legislation passed by Congress in the days following Katrina included $50 billion in funding, only $15 billion of which was targeted, meaning that as much as $35 billion in funding is already available for non-targeted needs to be determined later, like flood insurance coverage.