WASHINGTON — More than a year and a half after hurricanes Katrina and Rita spotlighted the need to reform the National Flood Insurance Program, lawmakers are still struggling to move forward.
Financial services lobbyists said they generally support a bill House Financial Services Committee Chairman Barney Frank introduced last month that would reform the program by increasing coverage and requiring the Federal Emergency Management Agency to update its flood maps.
But the bill, largely identical to one the House passed last year, also would increase penalties for lenders that do not enforce the law, and it would phase out an insurance subsidy on vacation and secondary homes. The industry opposes both provisions.
“The program needs to be reauthorized … because without it there are going to be a lot of people with real problems if we have more storms,” said Floyd Stoner, the head lobbyist for the American Bankers Association. Nevertheless, there are components to the bill that “in a perfect world we would like to see changed.”
Banking lobbyists argue that without reform a major storm could push the program into insolvency, making it harder for lenders to sell mortgages in coastal areas and other regions prone to flooding.
Under Rep. Frank’s bill, which has 11 cosponsors, including Rep. Richard Baker, R-La., coverage limits would increase 34%, to $335,000 for residential properties and $670,000 for commercial ones.
“We want to see the policy maximums increased,” said Patrick O’Brien, a lobbyist for America’s Community Bankers. “We thought the numbers were outdated, and they didn’t keep up with the real estate market.”
Under Rep. Frank’s bill, lenders could be fined up to $1 million with $2,000 charged for each loan that is made without ensuring that a required flood insurance policy is in place. Under the current program, lenders can be charged $350 per offense and are capped at $100,000.
Though lobbyists say the bill may clear the House Financial Services Committee and the full House this year, the legislation’s prospects remain in doubt.
Privately, many lobbyists said Senate Banking Committee Chairman Chris Dodd is preoccupied with his presidential bid and is unlikely to deal with flood insurance soon. And Sen. Richard Shelby of Alabama, the lead Republican on the panel, pushed last year for legislation that was tougher than the industry wanted.
That bill, which was blocked from passage by Louisiana’s two senators, Mary Landrieu and David Vitter, would have subjected banks to limitless fines for failing to enforce policies, required lenders to include the insurance premium in monthly mortgage bills, and phased out the subsidy for nonprimary residences more quickly than the House bill.
“The mortgage lending community has expressed their concerns about mandatory escrow and some of the penalties associated with coverage dropping,” said Andrew Barbour, a lobbyist for the Financial Services Roundtable.
Mr. Barbour also said lawmakers might wait to take up the issue next year, when the program is due to expire.
“It’s going to be difficult to get the attention of the financial services community on this when they know that they are going to have to go through this exercise again next year,” he said.
