WASHINGTON — The National Flood Insurance Program is so deep in debt that not even an "exponential increase" in flood insurance premiums would solve its fiscal problems, according to the top administrator at the Federal Emergency Management Agency, which oversees the program.

FEMA's deputy associate administrator, Roy Wright, told a House Financial Services subcommittee Thursday that the agency is now $24.6 billion in debt and is borrowing from the U.S. Treasury to cover the interest payments.

The program has been running in the red for years due to high claims it paid following such natural disasters as Hurricane Katrina and Super Storm Sandy, and because Congress has kept flood-insurance premiums low.

Rep. Maxine Waters, D-Calif.
"I really do believe we need to forgive this debt,” said Rep. Maxine Waters. “There is no way you can plan to reduce this debt by raising premiums." Bloomberg News

"Given the premium discounts, subsidies and grandfathering that's in place today, there is no practical way to repay this debt," Wright testified.

"It would require an exponential move in the policy premiums to pay annual flood claims and deal with the $24.6 billion," he added.

Rep. Maxine Waters, D-Calif., called for debt forgiveness.

"We are paying $4 billion a year on this debt. And the Congress of the United States of America will have to make a decision about this," she said. "I really do believe we need to forgive this debt. There is no way you can plan to reduce this debt by raising premiums."

Waters suggested the creation of special task force to review the flood insurance program and make a legislative proposal.

Republicans on the House Financial Services subcommittee on Housing and Insurance did not bite on the debt forgiveness proposal. Instead they focused on ways to pass a bill sponsored by Rep. Dennis Ross, R-Fla., that would promote the development of a private flood insurance program.

"Private competition in this market will lead to greater innovation, more affordable and comprehensive policies for consumers," Rep. Ross said at Thursday's hearing.

"We must place the National Flood Insurance Program on a sound financial footing and ensure no lapse in the program or interruption in the real estate markets," he said.

Meanwhile, news broke Thursday that the Trump administration is considering a surcharge on flood insurance policyholders to pay for President Trump's proposed wall along the Mexican border.

Wright said he is familiar with the proposal. "Final decisions related to the budget being developed by the White House have not been made," he said.

“This is purely outrageous and unconscionable," Rep. Waters said. "Cuts to funding for disaster preparation for local and state governments will leave our communities more vulnerable in the face of catastrophe."

Housing advocates, too, took issue with the proposal.

“We haven’t seen the specifics of any proposal," said Bill Killmer, senior vice president for legislative and political affairs at the Mortgage Bankers Association. "But as we’ve made clear with our position on the use of loan guarantee fees, we do not support the use of housing fees for non-housing-related purposes.”

The current legislative authorization for the flood insurance program expires at the end of September, which means the House and Senate will have to come together to pass new multiyear flood insurance bill.

The last flood insurance bill had directed FEMA to conduct a pilot reinsurance program. And FEMA purchased $1 billion in reinsurance in 2016 to reduce its losses.

"It is a cornerstone that we will be building on," Wright said. "It is an important tool. But I don’t believe that reinsurance can wholly solve the unfunded liabilities that are in front of us," the FEMA administrator said.

Wright stressed his support for the development of a private flood insurance market. He suggested that Congress could carve out a space where buyers of newly constructed homes would have to purchase private flood insurance.

Borrowers with federally related mortgages are required to have flood insurance if they live in high-risk flood areas, though FEMA has said that in some states as many as 50% of homeowners do not carry flood insurance. FEMA relies on the banking agencies to audit banks for compliance with flood insurance requirements, Wright said.

"Mandatory purchase is not a responsibility of the National Flood Insurance Program and more people need to be covered," Wright testified.

"We need to work with the lending regulators to redouble our efforts to see that improves," he said.

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