[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                           THE NATIONAL FLOOD
                           INSURANCE PROGRAM:
                       REVIEW AND REAUTHORIZATION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 1, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-17


89-082              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice         JULIA CARSON, Indiana
    Chairman                         BRAD SHERMAN, California
RON PAUL, Texas                      GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio                BARBARA LEE, California
JIM RYUN, Kansas                     JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSELLA, New York               CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey             
TIM MURPHY, Pennsylvania             BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

MARK GREEN, Wisconsin, Vice          MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska              JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana          BARBARA LEE, California
PETER T. KING, New York              MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          BERNARD SANDERS, Vermont
    Carolina                         MELVIN L. WATT, North Carolina
DOUG OSE, California                 WM. LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania      STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BRAD MILLER, North Carolina
GARY G. MILLER, California           DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania        ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 1, 2003................................................     1
Appendix:
    April 1, 2003................................................    33

                               WITNESSES
                         Tuesday, April 1, 2003

Baker, Hon. Richard, A Representative in Congress from the State 
  of Louisiana...................................................     4
Bereuter, Hon. Doug, A Representative in Congress from the State 
  of Nebraska....................................................     6
Blumenauer, Hon. Earl, A Representative in Congress from the 
  State of Oregon................................................    10
Berginnis, Chad, Vice Chair, Association of State Flood Plain 
  Managers.......................................................    21
Lowe, Anthony, Mitigation Division Director and Flood Insurance 
  Administrator, Emergency Preparedness and Response Directorate, 
  Department of Homeland Security................................    13
Nielsen, Gerald, Nielsen Law Firm, Metairie, LA..................    23
Willetts, Frederick III, President and CEO, Cooperative Bank, 
  Wilmington, NC on behalf of America's Community Bankers........    25
Willey, Fletcher J., Government Affairs Committee Flood Insurance 
  Task Force Chair, Independent Insurance Agents and Brokers of 
  America........................................................    24

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    34
    Baker, Hon. Richard H........................................    35
    Bereuter, Hon. Doug..........................................    44
    Blumenauer, Hon. Earl........................................    45
    Clay, Hon. Wm. Lacy..........................................    48
    Berginnis, Chad..............................................    49
    Lowe, Anthony................................................    60
    Nielsen, Gerald..............................................    69
    Willetts, Frederick III......................................    98
    Willey, Fletcher.............................................   103

              Additional Material Submitted for the Record

Mortgage Bankers Association of America, prepared statement......   108
National Association of Professional Insurance Agents, prepared 
  statement......................................................   116
National Association of Realtors, prepared statement.............   122
Taxpayers for Common Sense Action, prepared statement............   130
U.S. General Accounting Office, prepared statement...............   131

 
                           THE NATIONAL FLOOD
                           INSURANCE PROGRAM:
                       REVIEW AND REAUTHORIZATION

                              ----------                              


                         Tuesday, April 1, 2003

             U.S. House of Representatives,
 Subcommittee on Housing and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:06 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Robert Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Baker, Bereuter, Jones, 
Miller of California, Tiberi, Harris, Watt, Clay, Miller of 
North Carolina, and Scott.
    Chairman Ney. [Presiding.] This hearing of the Housing and 
Community Opportunity Subcommittee will come to order. We are 
here to hear testimony on the National Flood Insurance Program. 
Also I thank our witnesses obviously for being here today. I 
know you traveled a long distance to arrive here. This is an 
important hearing and your testimony will assist us in 
determining how best to go about reforming and reauthorizing 
the National Flood Insurance Program.
    Floods have been and continue to be one of the most 
destructive and costly natural hazards to our nation. The 
National Flood Insurance Program is a valuable tool in 
addressing the losses incurred throughout this country due to 
floods. It assures that businesses and families have access to 
affordable flood insurance that would not be available on the 
open market. The National Flood Insurance Program was 
established in 1968 with the passage of the National Flood 
Insurance Act. Prior to that time, insurance companies 
generally did not offer coverage for flood disasters because of 
the high risks that would be involved. Today, almost 20,000 
communities participate in the National Flood Insurance 
Program. More than 90 insurance companies sell and service 
flood policies. There are approximately 4.4 million policies 
covering a total of $620 billion.
    In order to participate in the program, communities must 
agree to abide by certain hazard mitigation provisions such as 
adopting building codes that require new flood plain structures 
to be protected against flooding or elevated above the 100-year 
flood plain. As many of you are aware, the NFIP reauthorization 
was due to expire December 31, 2002. Unfortunately, Congress 
adjourned without extending the program. This situation was 
quickly remedied in the 108th Congress on January 13 of this 
year. President Bush signed into law a bill to reauthorize the 
program for one year, retroactive to January 1, 2003. This one-
year reauthorization will give us the time necessary to 
determine how best to go about reforming the existing program.
    We are fortunate to have three of our more distinguished 
members of Congress on our first panel to discuss the proposals 
they have introduced. Congressmen Bereuter and Blumenauer have 
introduced H.R. 253, Two Floods And You Are Out Of The 
Taxpayer's Pocket Act, which authorizes the program until 2007 
and makes changes to the program as it relates to repetitive 
loss properties. Congressmen Bereuter and Blumenauer have a 
keen interest in reforming this program and we look forward to 
hearing about their legislation.
    Congressman Baker has introduced H.R. 670, the Flood Loss 
Mitigation Act of 2003, to provide for identification, 
mitigation and purchase of properties insured under the 
National Flood Insurance Program that suffer repetitive losses. 
As a representative from Louisiana, we know that our chairman, 
Mr. Baker, is no stranger to the issue and we look forward to 
hearing about the details of his legislation.
    I would also like to welcome Anthony Lowe, the 
administrator of the flood insurance program and Director of 
the Mitigation Division, along with our other witnesses. We do 
look forward to your insight and expertise. I would let you 
know that our ranking member, Ms. Waters, has notified us she 
will not be able to be with us today. However, without 
objection, her statement and that of any member will be 
included in the record. Hearing no objections, it will be 
included.
    With that, I will turn to the gentleman, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman.
    Ms. Waters asked me to be here, because I had asked 
somebody to substitute for me at a 10 o'clock hearing on a 
subcommittee that I was the ranking member of, and that person 
had agreed to do it. I felt like I at least ought to return the 
favor to somebody. So I am here. She asked me also to be here 
because she knows that North Carolina has a dog in this fight, 
and she probably figured I was going to be here listening to 
the testimony anyway. North Carolina, I think, is maybe the 
fifth most impacted state by what we are here to deal with 
today.
    I have a statement from Ms. Waters which I will not read, 
in the interest of time, but will submit for the record under 
the chairman's unanimous consent request. I look forward to 
hearing the witnesses, both my colleagues and the witnesses on 
subsequent panels. I yield back in the interest of time.
    Chairman Ney. I thank the gentleman for yielding back. 
Other opening statements?
    Mr. Clay. Mr. Chairman?
    Chairman Ney. Mr. Clay.
    Mr. Clay. I appreciate that the committee will hold 
hearings on a subject so important to my district and the State 
of Missouri. My district is in an area that is the watershed of 
both the Missouri and the Mississippi Rivers, two of the 
largest river systems in the United States. Congress passed a 
the National Flood Insurance Act to identify flood-prone areas, 
make flood insurance available to property owners and 
communities enrolled in the program, and to assist and 
encourage floodplain management and ultimately reduce federal 
spending for disaster assistance.
    In 1993, one of the worst years in the history of Midwest 
floods, my district suffered from floods both in the city and 
in the county areas of St. Louis. There was no one left 
untouched by the devastation that took place. It would be hard 
to anyone to contemplate what would have happened were not the 
National Flood Insurance Program already in place. There is a 
tremendous need for the reauthorization of this program. It is 
the key to survival of many Missouri businesses and families.
    One of the largest issues of this reauthorization is 
addressing the issue of repetitive lost property--those 
properties that have experienced two or more losses greater 
than $1,000 each within a 10-year period. FEMA has identified 
over 48,000 properties insured under the national flood 
insurance plan that meet the definition of a repetitive loss 
property. Of that number, over 10,000 have had flood losses 
that total over $80 million annually.
    Mr. Chairman, I look forward to the discussion of these 
issues today and I ask unanimous consent to submit my statement 
to the record.
    [The prepared statement of Hon. Wm. Lacy Clay can be found 
on page 48 in the appendix.]
    Chairman Ney. Without objection. I thank the gentleman for 
his statement.
    The gentleman from Georgia, Mr. Scott?
    Mr. Scott. Chairman Ney, I want to thank you and certainly 
Ranking Member Waters and Ranking Member Watt, who has so 
dutifully taken her place. I want to thank you for holding this 
important hearing today regarding the National Flood Insurance 
Program. I represent the State of Georgia. We have had one very 
impactful area in my state recently, and that is in the Albany-
Southwest Georgia area, with the Flint River; and also down in 
the central part of our state with the Ocmulgee River. We have 
had some very catastrophic situations that took place there.
    I want to thank the distinguished panel of witnesses and my 
colleagues who are working very feverishly on this issue. I 
certainly support the National Flood Insurance Program because 
I believe that it provides an important service to people who 
have had property hit by a natural disaster. However, I 
recognize that an exceptional group of repetitive loss 
properties have cost the program a significant share of annual 
funds. With the budget battles that are currently being waged 
in the House, we certainly need to find the best ways to target 
these scarce federal funds. I certainly look forward to hearing 
about H.R. 253 and H.R. 670 and other recommendations for the 
reform of the program.
    As we move forward, there are some specific issues that I 
certainly hope we will cover. I am very much concerned about 
those that are at the lower end of the economic pole, the 
lower-income occupants in repetitive loss properties, that do 
not have the ability to just move anywhere or pay for 
mitigation measures. It is important to find out what can you 
assure the low-income owner or renter of properties in regards 
to these reforms to the program, and what protections can be 
offered to them. I am also concerned that in some cases 
mitigation purchase offers may be insufficient to pay off an 
outstanding balance on mortgages secured by these targeted 
properties. Is there an appeal? What appeal or what option 
would a homeowner have to address this inequity?
    We are dealing with the most important asset that any 
family can have, and that is their home. I recognize the 
importance of that and I also recognize the importance of the 
budget shortfall we are faced with. This is our challenge.
    Thank you, Mr. Chairman. I appreciate it.
    Chairman Ney. I thank the gentleman from Georgia.
    With that, we will begin with Mr. Baker.

    STATEMENT OF HON. RICHARD H. BAKER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Baker. Thank you, Mr. Chairman. I appreciate your 
courtesy in calling this hearing and offering me an opportunity 
to participate.
    This is an unusual issue in that in the former Congress, 
former member Bentsen, myself, Baker, my good friend from 
Nebraska, Mr. Bereuter, and Mr. Blumenauer were all active on 
this subject. It seems the letter ``B'' and hot water sort of 
go together, hand in hand. I have not figured it out yet.
    We also have quite different perspectives about the 
validity of the program and its usefulness to the American 
people. The first thing I would like to address is the question 
of taxpayer bailout and the access to taxpayer funds in order 
to make this program operational. We have plotted and make 
available to the committee a chart which shows over time the 
line of credit which is utilized by the program to meet needs 
of those who fall victim to a flooding event. As you may know, 
we assess a participant in the program a premium. The premium 
goes into a fund, and depending on the cycle of weather and 
flooding and events, we can either have a surplus or a deficit 
in that fund. There is no question that in given years, we have 
dipped significantly into that line of credit and have in 
essence a loan from the American taxpayer. To date, this chart 
goes through the end of 2001, showing about a $700 million 
surplus on hand in that fund. All funds advanced for the 
purpose of flood insurance program payments have been repaid 
with interest. This is one of those rare occasions, as opposed 
to being a run on the line of taxpayer credit, it actually is a 
program which has returned money to the program from which it 
was intended.
    It is my judgment that we need to frame the argument in 
proper perspective. It really is not a run on taxpayer money. 
However, if we choose to contrast that with the Federal 
Emergency Management Administration's general disaster relief 
program, in the year 2001, for example, $3 billion of taxpayer-
appropriated dollars were paid out. Now, we all find those 
appropriations and activities meritorious. No one here is 
suggesting we do away with FEMA disaster assistance, but keep 
in mind the flood insurance program has generated repayment of 
all advances with interest and currently have a surplus. It 
certainly will run deficits again, as disasters take their 
toll, as contrasted with the FEMA appropriations which 
literally spend billions of dollars from the taxpayer's pocket.
    Then when we began to look state by state, I think many 
would find this of interest--taking, for example, the state of 
California as one example of participation in the program. They 
have insurance in force covering about $45 billion in assets. 
The premiums they collect to cover that $45 billion exposure is 
$134 million a year--$45 billion coverage; $134 million in 
premium. The state of Louisiana, by example, has $45 billion of 
policy in force. We pay $151 million in flood insurance 
premium. The small state of Louisiana pays $20 million more a 
year in flood insurance premium than the great state of 
California, with the same exposure to the fund.
    What does this mean? It means we are perhaps more likely to 
have a flooding event, but we are paying our portion of our 
risk. If you look to the numbers of individuals who are covered 
by the program--and just a brief word how it works. Each state 
has a 100-year flood survey. If you fall within that 100-year 
plain, you are supposed to be enrolled in the program paying 
premium appropriate to your flood risk. That is not the case. 
Of the areas identified within the 100-year flood plain 
nationally, approximately one-half of the individual properties 
are enrolled in the flood insurance program. So on its face 
there appears to me a very readily acceptable solution. Those 
who are in a flood-prone area should simply pay the premium. On 
the other hand, if you were involved in an automobile accident 
more than once, even if you paid your premium, we do not say to 
you, we are going to take away your car insurance. Neither 
should we say in the case of a repetitive flood loss, because 
you flooded more than once, you should lose your coverage.
    Why? Well, if I lived downstream in South Louisiana, and I 
encourage all of you to come because if you have not been down 
to the great port of Baton Rouge or New Orleans, about two-
thirds of this wonderful nation's water goes right by my house. 
It is a magnificent thing to see. But in most developments, if 
you buy in a nice dry subdivision, minding your own business, 
you can live there for a number of years and because of 
upstream development, either the municipality, the parish or 
county as you call it, other developers, can change drainage 
patterns. You have an on-shore wind, a hurricane brewing, a 
full moon--that has an affect--and you have an upstream 
development that changes flood patterns, all of a sudden you 
find yourself with water in your home where it never occurred 
before. That was not in bad faith. It was by the actions of 
upstream development over which you have no control.
    So what can we do about this? Well, it just so happens I 
have a bill, as referenced by the chairman, H.R. 670. This 
establishes a process which I think Mr. Scott in his opening 
statement would find interesting. It does not say we are going 
to pass one standard--repetitive loss, dollars lost. It is 
going to say that when FEMA identifies you as a problem, they 
have an obligation to notify you and say you are a problem. 
Then you have a right to a hearing and offers of mitigation. 
Under the Bereuter proposal, it is two offers of mitigation you 
must refuse before you are booted out. Under our proposal, it 
is one. If you refuse mitigation one time, and it is a 
responsible solution to your problem, you are out of the 
program. It does not refer or relate, however, to the number of 
losses for which you may claim. You can have one bedroom in the 
house get the carpet wet, and it is a $1,000 event. You could 
have one event and be $100,000 event. It gives FEMA the 
responsibility and the authority to do a case-by-case 
assessment and places within their hands the responsibility to 
protect the integrity of the program. To me, that makes a great 
deal of sense.
    You are absolutely correct. In many cases, people who live 
in low-lying areas are not living in the expensive houses. 
There are people who may have significant debt. There are 
people who are going to have alternatives to go out or perhaps 
even enjoy the benefit of home ownership. They may be renters. 
The devastation is no less. In South Louisiana, we have a 
rather direct way of saying it: Do not throw Bubba out with the 
bathwater. We have working families who are paying their flood 
insurance premiums, who by no fault of their own find 
themselves in circumstances not of their own choosing.
    There is a way to remedy this program. One is to get all 
who benefit from it paying premiums as we do in Louisiana, and 
two, is to give FEMA the discretionary authority to get rid of 
the multiple offenders who are violating the principles on 
which the program was built, and I support that. Lastly, as Mr. 
Blumenauer's interest has expressed repeatedly over time, we 
need to do more in the way of local initiatives and greening 
the results of a flood mishap. Where we have a property we have 
identified, let it not go back into commerce. Turn it into 
green space so we do not repeat the same problems we are 
correcting.
    Finally, communities should be given credit for their own 
initiatives to reduce flooding where possible. In my own 
district, we just passed a property tax in some very 
conservative territory, as a local match with state dollars to 
build a $160 million drainage structure which is to lower flood 
elevations in our community by two to six feet, depending on 
where you live. Where a community is taxing itself to make 
changes, that ought to be given credit by FEMA.
    Thank you, Mr. Chairman, for this time.
    [The prepared statement of Hon. Richard H. Baker can be 
found on page 35 in the appendix.]
    Chairman Ney. I thank the gentleman for his testimony.
    The gentleman from Nebraska, Mr. Bereuter.

 STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEBRASKA

    Mr. Bereuter. Good afternoon, members of the subcommittee. 
Mr. Chairman, thank you very much for holding this hearing 
today on this important subject.
    In January of this year, Congressman Earl Blumenauer and I 
introduced the Two Floods And You Are Out Of The Taxpayer's 
Pocket Act. We introduced similar legislation in both the 106th 
and 107th Congress, and I have been active with former 
Congressman Joseph Kennedy since practically my first service 
on his subcommittee and committee. This bill represents, then, 
a continuation of a long-term interest in our effort to reduce 
the extraordinary cost of repetitive losses from the NFIP as 
administered by FEMA.
    At the outset, I would like to thank Mr. Blumenauer for his 
dedication and devotion to the principles and details of this 
legislative effort. I also note that during the 106th Congress, 
FEMA, under the direction of James Lee Witt, was involved in 
assisting us in drafting our legislation and was supportive of 
it. Furthermore, I would like to thank my colleague, Richard 
Baker, who has, of course, just testified, for his effort and 
concern about the functioning of the NFIP. He brings up a 
number of good points. We are proud in fact to take into 
account certain of his concerns, and there are others that 
should be. I look forward to working with him.
    This legislation is very important because, of course, the 
authorization expires on December 31 of this year. Our 
legislation would extend the authorization until 2007 and make 
essential changes to the program as it relates to repetitive 
loss properties. According to FEMA, as of January 31 of this 
year, the NFIP program insured over 48,000 repetitive loss 
properties. Repetitive loss properties are those which have two 
or more NFIP claims each over $1,000 within a 10-year period, 
as we are using that term. These properties represent 1 percent 
of the properties that are currently insured by the NFIP, but 
in an average loss year they counted for 25 percent of the NFIP 
flood claim dollars. The NFIP pays out on average more than 
$200 million annually to address repetitive loss properties.
    If enacted, this legislation we offer I think will help 
turn the tide against the huge costs associated with repetitive 
loss properties. Twenty-five percent of all current NFIP 
policies are subsidized by other premium payers, and thus do 
not pay actuarially sound rates for their coverage. I agree 
with Mr. Baker that all properties located within the 100-year 
flood plain should be required to have national flood 
insurance. However, they should also pay actuarially sound 
rates, I would contend. A significant number of those 
subsidized policies are for repetitive loss properties. 
Moreover, the NFIP has had the unintended effect of helping 
people stay in areas that are repeatedly flooded, when it would 
be in their best interest and those of FEMA and other 
policyholders of NFIP to mitigate the flood vulnerability of 
these properties, or to move elsewhere.
    The legislation authorizes a $400 million increase in the 
FEMA mitigation grant assistance program over four years, to be 
used to relocate or elevate properties that have sustained the 
most repetitive loss flood damage. Furthermore, the legislation 
addresses the repetitive loss properties in a simple, 
straightforward manner. The owner of repetitive loss property 
will be charged the actuarially sound risk-based rate for their 
national flood insurance policy, if both of two conditions 
prevail. The first condition is that two or more NFIP claims 
must have been paid on an individual property, each over 
$1,000, within a 10-year period of time. By the way, we 
certainly will look for discussion and consideration of an 
amount different, higher than $1,000 if that is in fact too 
low. The definition is different than the one used in our 
legislation in the 106 and 107th Congress, which included flood 
insurance claims under that figure, within the definition of a 
repetitive loss property. This was a response to the concerns 
brought to us by various members and interests.
    Second, the owner of the property must have refused a 
federally funded buyout or federally funded mitigation measure 
such as an elevation of the structure or property. Of course, 
mitigation offers would be made only when there is a cost 
effective mitigation option for the property. FEMA has 
testified in the past that properties which have suffered more 
repetitive NFIP claims and/or losses will in general be those 
which are more cost-effective to mitigate. I think it is 
important to note that this Act will not in any manner deny 
flood insurance coverage to any interested owner, renter or 
occupant of a property. That is not the case, but they must pay 
realistic actuarially sound rates under this legislation.
    I co-authored this legislation for numerous reasons. 
However, the following four reasons are the most significant 
grounds, I think, for this legislative initiative. First, some 
policyholders of repetitive loss properties are able to take 
advantage of and abuse the NFIP by making claim after claim on 
the same flood-prone properties. Number two, federal taxpayer 
money will be saved under H.R. 253. Yes, I know that there is a 
return on it under most conditions, and eventually that may 
always be the case. That is uncertain. Three, through the 
policies and practices of the currently constituted NFIP, the 
Federal government is encouraging development by giving the 
subsidized flood insurance to these high-risk areas through the 
excess insurance premiums and costs to other policyholders. And 
fourth and finally, there is a demographic trend of far more, 
and a higher percentage of Americans living closer to the 
United States coastlines and rivers which will, in the absence 
of reform legislation, result in a greater number of repetitive 
loss claims.
    So laying a few facts on each of these four, I would say 
the following. According to FEMA, there is a category of 10,000 
repetitive loss target properties which meet one of the two 
definitions. These target properties either have four or more 
total NFIP losses no matter what their value, or they have had 
two or three losses, or the cumulative NFIP payments are equal 
to or greater than the buildings' value. For example, one of 
the most egregious examples among a great many examples of 
abuse of the NFIP was a home in Houston, Texas which was valued 
at $114,480, yet it received $806,591 in flood insurance 
payments over the last 18 years. These property owners did not 
do anything wrong. They just exploited the current situation 
that is there in our flood insurance program.
    I think it is important to note that some NFIP repetitive 
loss policyholders are not intending to abuse the NFIP, but 
instead are trapped in a cycle of loss after loss, and 
mitigation is their only solution for their property. In fact, 
in some repetitive loss properties, the value of a person's 
home is now less than their mortgage. It is important to note 
that FEMA is the only willing buyer of many repetitive loss 
properties. Furthermore, under the NFIP a very large regional 
cross-shifting of the cost of flood insurance is occurring. The 
policyholders in non-repetitive loss areas of the country by 
their higher than appropriate premiums are subsidizing the 
policyholders in repetitive loss areas of the country. In 
FEMA's defense, it does not have the congressionally mandated 
tools to address the costs and the cost shifting caused by 
these repetitive loss properties, and we attempt to give them 
those tools in this legislation.
    Second, the legislation will save federal taxpayer dollars. 
According to FEMA, $1.2 billion of the over $12 billion in past 
NFIP losses have been funded by general taxpayer funds. While 
this money has finally been repaid by FEMA to the Department of 
Treasury--and my colleague points out, with interest--I 
certainly know of no private insurance company that can long 
stay in business if it disregards good actuarial practices. 
American NFIP policyholders and taxpayers are paying the costs 
for those individuals who choose to live or who have perhaps no 
option but to live in high flood risk areas and who fail to 
take prudent mitigation actions. In some cases, they do not 
have the resources for mitigation. This bill will help to 
ensure the future solvency of the NFIP, even when the prospect 
that we are going to have, according to climatologists, many 
more hurricanes in the upcoming years.
    Moreover, this bill will also save substantial taxpayer 
money in the cost of federal disaster relief assistance, as 
many properties will be bought out and removed from federal 
disaster area-prone areas. This bill explicitly provides that 
many types of federal disaster relief assistance will be not 
given to the owners of repetitive loss properties, but only if 
they refuse to accept the mitigation assistance. Third, my 
support for the legislation is based on the fact that NFIP 
gives subsidized flood insurance to disaster-prone areas. Many 
interests, including taxpayers organizations, flood plain 
managers, and environmental groups, have argued that the NFIP 
encourages people to live in repeatedly flooding areas. The 
question needs to be asked whether rebuilding in repetitive 
loss, high-risk areas is a sensible and economically justified 
policy. I believe in many cases the answer certainly would be 
no. The Federal government should not encourage development in 
even more repetitive loss properties.
    Fourth and lastly, the demographic reality is that more and 
more Americans each year have residential properties along our 
coasts and rivers. For example, according to the U.S. Census 
Bureau, within the next 10 years 75 percent of the United 
States' population will live within 100 miles of the U.S. 
coastline. Due to this demographic trend, the time is certainly 
upon us when Congress should change the structure of the NFIP 
and encourage proper mitigation action. To further illustrate 
this point, I support this legislation because of a predicted 
future change in weather patterns. Dr. William Gray, a highly 
respected professor of atmospheric science at Colorado State 
University, predicted that over the next few decades the East 
Coast and the Gulf Coast will be subjected to more frequent and 
forceful tropical storms, including hurricanes. Due to the 
number of repetitive loss properties on the coast, additional 
hurricanes will result in huge numbers of additional claims 
under NFIP, and of course disaster relief. It is imperative, I 
think, that the NFIP is changed before the eye of yet another 
hurricane is upon us.
    In summary, I think we need to stop treading through water 
of repetitive loss after repetitive loss. Passing legislation 
is the right thing to do at this time. In fact, Congress has 
delayed far too long in making some obvious reforms to NFIP. We 
look forward to working with you, Mr. Chairman and members of 
the subcommittee and the committee, including especially Mr. 
Baker, in attempting to craft legislation which will serve the 
purposes of the NFIP, the taxpayers, and will not result in 
undue hardship for people that happen to be living in 
repetitive loss structures.
    Thank you very much.
    [The prepared statement of Hon. Doug Bereuter can be found 
on page 41 in the appendix.]
    Chairman Ney. I thank the gentleman.
    The gentleman, Mr. Blumenauer from Oregon.

STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF OREGON

    Mr. Blumenauer. Thank you, Mr. Chairman and members. We 
deeply appreciate the opportunity to testify here today on this 
critical issue.
    I will not bore you with repeating what my colleagues have 
mentioned. I just want to be clear that I deeply appreciate the 
leadership that Mr. Bereuter has demonstrated. I feel like I 
have learned a lot in having a chance to work with him on this 
legislation. I am intrigued with a number of the points that 
our colleague Mr. Baker has focused on in terms of some of the 
unique circumstances that have occurred over time. We must be 
broad-minded and flexible in dealing with them.
    My focus is making sure that the Federal government is a 
better partner in making our communities more livable, making 
families safe, healthy and more economically secure, and 
dealing meaningfully with the water cycle is an important way 
to meet that responsibility. For too long, the Federal 
government has tended to treat our precious water resources as 
if they were mere engineering projects, machines we could 
adjust, channel, narrow and accelerate without consequence. The 
results, frankly, have been little short of disastrous. The 
flood insurance program is an important element that has 
developed to try and ameliorate this situation. It is a good 
example of how the Federal government can work with local 
communities to lessen the impacts that disasters have on 
people's lives and property.
    As we move toward the reauthorization process, it is time 
for the Federal government to provide better incentives for all 
involved--individuals, communities and states--to deal in a 
comprehensive fashion. Part of the problem is that the way the 
federal flood insurance program is currently constituted 
actually encourages flood plain development by, reducing the 
economic risks of living near the water. We have stimulated 
some of the things that Congressman Baker talks about that 
actually make the problem worse over time. The administration, 
to its credit, has identified an important environmental and 
economic priority to reform the flood insurance program, and 
they did that from the first day they started work. The 2003 
budget aimed to, ``reform the National Flood Insurance Program 
to improve financial performance and transfer greater financial 
responsibilities to individuals who build in flood-prone 
areas.''
    The OMB has argued that for too many years the program has 
put expenses greater than revenue from insurance premiums that 
prevent building the long-term reserves necessary for a 
rational insurance program. As has been mentioned by my 
colleague Mr. Bereuter, we are facing, no pun intended, the eye 
of the storm in the future--demographic changes, change in 
weather patterns because of global climate change, and changes 
in development patterns. We are going to see greater and 
greater catastrophic loss. Already, we have talked about the 
$1.2 billion that was necessary to shift because there was a 
shortfall. But there is a greater problem over time. We are 
dealing with expenses for disaster relief that the Federal 
government has to pay that are far in excess of that--over $3 
billion extra in a typical year. There are other experts here 
that will talk in terms of how it is actually greater.
    We have seen that our specific target properties take too 
much of the premium dollar. We subsidize people to live in 
repetitively flooded areas. In order for them to do so, not 
only does it drain more resources from the program, but 
everybody else pays a higher insurance premium than would be 
necessary. Now, Congressman Baker points out, and I agree with 
him, that you should not take away somebody's car insurance 
because they have an accident. But the current situation is 
analogous to taking that proverbial little old lady who drives 
her car once a week to church without incident, and making her 
pay more because somebody who is repeatedly in auto accidents 
actually pays far less--not taking insurance away, but they 
actually pay less than they should.
    Our Act would correct that. It would not deny insurance to 
anybody, but it would force them to make a choice after 
repetitive flood loss. They either move, mitigate or ``pay the 
freight.'' I would suggest that this will save billions of 
dollars in avoided disaster relief that we have seen every year 
in the eight years that I have been in Congress. We have had to 
shell out more money than was budgeted. But it also will 
protect the people who live in harm's way. We do not do anybody 
a favor keeping them in the path of repeated floods. Members of 
this committee know examples in their own states--in Georgia, 
in North Carolina, in Ohio, in Louisiana, in Texas--where we 
have seen people die because they live in places where God has 
repeatedly shown that he does not want them. We do not do them 
any favors. I am very interested in the suggestions that are 
being offered by Mr. Baker for ways to provide appeals, to deal 
with areas of low income and historic districts. I think we can 
work that problem through, but we do them no favor keeping them 
in harm's way.
    I have seen the example in my own community. In 1996, we 
had one of the worst floods in the last half-century. I used to 
be the Portland public works commissioner and was out there in 
the morning where there was national television coverage as we 
were trying to sandbag to prevent flooding in our downtown. We 
had at least three people die. We had 23,000 people in our 
state that had to be relocated. We had an estimated more than 
$250 million of loss, not just from flood insurance, but from 
disaster relief that the Congress voted to provide. After this 
experience, our community secured a Project Impact designation 
and leveraged federal money to create more disaster-resistant 
communities. Our city applied for a community rating system 
rating, and in 2001 got a class six rating, what was than the 
seventh-best rating in the country. Since then, our flood plain 
residents have seen 20 percent reduction in their insurance 
premiums, and we have seen much less damage from subsequent 
events.
    I look forward to working with you to save taxpayer money, 
to save lives, improve the environment and deal with people who 
have legitimate needs. I appreciate your courtesy.
    [The prepared statement of Hon. Earl Blumenauer can be 
found on page 45 in the appendix.]
    Chairman Ney. I thank all three members for testifying. I 
would be curious, and will work with Congressman Baker, with 
your office--a very fascinating chart of the year-end results, 
I would like to see some of the analysis of how this happened 
and how the flow went up and down. It would be interesting.
    I do not have any questions. I just have a comment. We had 
an interesting situation occur, and I think it just fits in 
with how you craft a bill, how it is carried out--whatever bill 
it is. But in Powhattan Point, Ohio we had floods down in an 
area I used to represent in the old district. What ended up 
happening was the people would move the trailers off when the 
flood was coming, and then they would move the trailers back--
for years. Well, they moved the trailers off one time, and all 
of a sudden FEMA said you cannot move them back now until you 
build a 40-foot tall block wall and put the trailers on top of 
it. I am not talking manufactured housing. I am talking about 
25-year-old trailers.
    So you have to step in with caution, and say wait a minute. 
You could kind of look at it technically that those people were 
twice or ten-times went into a flood area, but actually--this 
is a unique thing, I know--but still FEMA came in an said, no 
you cannot do that--build a 40-foot tall structure, put the 
trailer on top of it. I think there are cases, when you deal 
with any of this, you have to really think it through. I know 
this is one isolated case. There are a lot of situations, I 
think, that cause a lot of interesting debate on how you craft 
this to work.
    Mr. Baker. Mr. Chairman, I want to take recognition of some 
of the points my colleagues have made, and say that the example 
you have just given is the exact opposite of what I am 
concerned about, where people go buy a trailer before the 
flood; they wait until it is starting to flood; move the 
trailer into the flood plain; make the claim and move back out 
after the water is gone. I think in the example that Mr. 
Blumenauer gave of the little old lady and the repetitive 
speeder, I would in this case give FEMA the right to be the cop 
and not wait on hearings, not wait on offers, not wait on 
mitigation turn-downs, but empower FEMA to go get the bad guys 
and throw them out the next morning.
    We are not really that far apart. I think the only 
difference is how we get at the problem people and who has the 
authority to make those determinations. I just thank the 
Chairman for his willingness to give us this opportunity.
    Chairman Ney. Thank you. I want to thank the members for 
their testimony.
    Mr. Bereuter. Mr. Chairman, I would ask unanimous consent, 
as a member of the subcommittee if I may, that Mr. Blumenauer 
be allowed to come up front and listen to the other testimony 
under such conditions as you would lay down.
    Chairman Ney. Without objection.
    Mr. Bereuter. Thank you.
    Chairman Ney. As long as he walks up and does not ride a 
bicycle up to the front, but that is okay.
    [Laughter.]
    I support his bicycling efforts, too, by the way.
    I call panel two. I want to welcome Mr. Anthony Lowe. Mr. 
Lowe has been appointed Director of the Mitigation Division of 
the Emergency Preparedness and Response Directorate in the 
newly created Department of Homeland Security. He continues to 
serve as a Federal Insurance Administrator responsible for 
overseeing the National Flood Insurance Program.
    With that, we welcome you, Mr. Lowe.

  STATEMENT OF ANTHONY LOWE, MITIGATION DIVISION DIRECTOR AND 
 FEDERAL FLOOD INSURANCE ADMINISTRATOR, EMERGENCY PREPAREDNESS 
   AND RESPONSE DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY

    Mr. Lowe. Thank you. Thank you very much, Chairman Ney, 
Ranking Member Waters, in her absence, Mr. Watt, members of the 
subcommittee. I am Anthony Lowe, Federal Insurance 
Administrator and Director of the Mitigation Division of the 
Emergency Preparedness and Response Directorate of the 
Department of Homeland Security.
    On behalf of the National Flood Insurance Program, the 
NFIP, we appreciate the invitation to appear today before the 
Subcommittee on Housing and Community Opportunity. This summer 
marks the 35th year since Congress first authorized the 
National Flood Insurance Program. After humble beginnings, the 
NFIP now stands as the largest single-line property insurer in 
the United States, with 4.4 million policies in force and $637 
billion in insurance coverage. Nearly 20,000 participating 
communities are managing their flood risk and reducing 
America's flood damages by an estimated $1 billion each year. 
Floods are still, however, the most frequent and costly hazard 
in the nation. So our mission to save lives and property in 
America continues. It is our goal to make the NFIP a 
performance-driven, results-oriented program to improve the 
delivery of hazard identification, mitigation, and flood 
insurance services across the United States.
    In line with the President's management agenda, we are 
managing the NFIP, as well as all of our mitigation programs, 
to achieve real results that reduce the risk and provide 
greater protection. By the end of this fiscal year, our 
performance objective is that 5,000 more people, 2,200 more 
structures, and 150 more community infrastructures will be 
better protected. Toward this end, we are moving to an e-
commerce model that will automate the NFIP's business processes 
to improve delivery of services, while decreasing the total 
cost to the program along the entire value chain.
    In addition, critical to achieving program results is 
accurate flood-risk information. Accurate flood-hazard data 
saves money. More importantly, accurate flood-hazard data saves 
lives. We appreciate Congress appropriating $150 million this 
fiscal year to help us update and digitize the NFIP flood maps. 
We are leveraging that investment with our State and local 
partners to earn even greater value.
    Our mitigation programs are also paying off. For example, 
among our Flood Mitigation Assistance, FMA, projects completed 
between 1997 and 2002, we found that for every dollar we 
invested in mitigation, the taxpayer received savings of $2.62 
in avoided flood damages. During this period, we leveraged $170 
million for federal dollars, and $60 million in State and local 
cost-shares to return an overall savings to the American 
taxpayer of $440 million. We cannot put a price tag on what 
this means in human terms, however--only that our mitigation 
projects have made thousands of citizens safer from floods and 
the misery they cause.
    Mr. Chairman, besides the obvious success of the program, I 
am also happy to report that the NFIP is once again debt-free. 
In June, 2001, Tropical Storm Alison became the program's first 
$1 billion storm. We had to borrow $660 million from the 
Treasury to pay for losses that exceeded our reserves. We 
repaid that debt with interest in October, 2002. Again, our 
greatest achievement continues to be in the lives we save and 
in the communities that are safer from flood losses. However, 
the NFIP has its challenges. Everyone recognizes that 
repetitive flood loss properties are a national problem. We are 
paying far too much in claims for just a handful of properties, 
and there is a painful human face to this problem as well. Far 
too many people are caught in a desperate cycle of damage-
repair-damage with few options for escape. To a degree, the 
problem of repetitive flood loss properties is an inherited 
one. Congress structured the NFIP as an agreement between the 
Federal government and local communities, communities that 
would adopt and enforce mitigation standards for new 
construction in their high-risk flood plains. In return, all 
property owners could purchase flood insurance.
    This program was designed so that the owners of existing 
properties would pay discounted premium rates that do not 
reflect the full actuarial risk, so as not to be penalized for 
buying or building in a flood plain before full knowledge of 
the flood risk was known. Today, we find that almost all 
repetitive flood loss properties were built before the 
availability of detailed flood-risk information. Of course, two 
bills are being considered today by this committee to address 
the problem of repetitive flood loss properties. I commend the 
sponsors for their leadership in focusing attention on this 
national problem and in proposing remedies for people caught in 
a desperate cycle of repetitive flood losses. While the 
administration has not taken a position on these bills, we 
would like to share with the Subcommittee our thoughts on the 
necessary tools to address the problem of repetitive flood 
losses in America.
    The NFIP's broad definition of two or more flood losses of 
$1,000 or more helps us identify for analysis our entire 
universe of insured repetitive flood loss properties--some 
48,000 properties. From this broad category, we would like to 
first target 10,000 of these insured repetitive loss properties 
for mitigation, relocation, elevation, or acquisition. This 
target group of properties has four or more flood losses or two 
or three losses that cumulatively exceed the value of the 
building. We have paid close to $1 billion in flood insurance 
claims on these properties since 1980. We need a full set of 
tools to address this problem. In this connection, resources 
are clearly necessary. Flexibility is also key in determining 
the composition of repetitive loss projects and in defining our 
highest priority properties. On average, the program identifies 
500 to 750 new repetitive flood loss properties each year. 
There should also be some consequence for a property owner who 
refuses a mitigation offer to remove himself from harm's way. 
An actuarial premium or sufficient deductible is in keeping 
with the intent of this program.
    However, we are also cognizant that some property owners do 
not accept mitigation assistance, especially buyout offers 
because they cannot afford the cost share. In other cases, 
there are few alternative living sites in that area. So again, 
we need flexibility and often creativity to deal with this 
unique circumstance. Let me give you one example of that 
creativity. We are piloting a project in Louisiana that 
involves the demolition and rebuilding or elevation of six 
severely flood-damaged properties on the repetitive target 
list. This will give the owner a new home at the cost of an 
elevation project. A similar pilot is also occurring in 
Florida. That cost-share in Louisiana is being borne by the 
State and the parish. In addition, we also need the involvement 
of State and local governments in the disposition of these 
properties so that the Federal government does not become the 
owner of these properties. With these tools, we can achieve the 
results that are good for the community, the individual 
property owner, and the NFIP.
    Chairman Ney. I want to note the time has expired.
    Mr. Lowe. Thank you.
    For us to continue to be effective, however, the 
authorization of the NFIP is important. We appreciate the 
actions of this committee to reauthorize this program when we 
had that lapse back in December. Needless to say, the program 
and its stakeholders would also be happy with the multi-year 
authorization that has been discussed by one of the bill 
sponsors.
    Again, thank you for the opportunity to testify on behalf 
of the program and the Department of Homeland Security.
    [The prepared statement of Anthony Lowe can be found on 
page 60 in the appendix.]
    Chairman Ney. Thank you, Mr. Lowe. On FEMA's description of 
repetitive loss properties, there is a threshold of two or more 
$1,000 events in a 10-year period.
    Mr. Lowe. Correct.
    Chairman Ney. How was that definition of repetitive loss 
arrived at?
    Mr. Lowe. What we were trying to do was to really define 
the entire universe of repetitive loss properties so we could 
further analyze those properties and try to determine what, if 
anything, we should do. Obviously, we know that we have 48,000 
of those properties from that definition. We were also able to 
determine that $200 million annually was being spent on these 
properties. Similarly, with the 10,000 properties that we 
boiled down from the total to develop our repetitive loss 
target strategy, we know there is an annual loss of $80 
million. Again, that comes from our definition. Because we add 
to those properties every year from 500 to 750, it means we 
need a flexible definition that will allow us the opportunity 
to adjust that target group.
    There is also another aspect that I am just going to 
mention very quickly, simply because I have read the 
transcripts from last year's hearing--excuse me, the year 
before last. There are many instances where there is a property 
on the target list in the community, but there may be other 
nearby properties that are repetitive loss, but maybe have not 
had many losses. The community or the State decides, we need to 
do something about the whole flood plain, and we do not want 
the blight of a checkerboard effect of both mitigated and 
unmitigated properties. Therefore, the State or community 
proposes to actually address the whole area or the whole number 
of properties in that community. In that instance, again, we 
want to have the flexibility to be able to meet their need.
    Chairman Ney. If you need the flexibility, but the desire 
to have the $1,000 in the statute, is that correct?
    Mr. Lowe. Frankly, I do not think we would at all be 
opposed to simply publishing a rule as to what the target group 
would be in any given year.
    Chairman Ney. Instead of----
    Mr. Lowe. Instead of any particular dollar amount or any 
particular number. I say that because the flood plain is always 
changing and that number will always be changing. We are going 
to learn as we begin to mitigate more and more of these 
properties as well.
    Chairman Ney. The GAO report--I am not sure when it came 
out--but it identified improving the financial condition of the 
flood insurance program and it said that it would be a major 
management challenge to do that, to improve the financial 
condition. Do you think there are structural changes needed 
within FEMA in response to the GAO report?
    Mr. Lowe. Again, personally, I would disagree with that 
report. I think the fact that this program has existed as long 
as it has, and since 1986 has consistently repaid the treasury 
what it borrowed with interest after certain disasters--I think 
that indicates in fact a certain amount of actuarial soundness 
of the program. By the same token, I think we can do a 
tremendous amount to strengthen this program by dealing with 
these repetitive loss properties. The older, so-called pr-FIRM 
properties account for basically a premium shortfall in the 
program of about $700 million annually. So when you look at 
that figure, it means we almost never build up a reserve. Our 
reserve right now is about $112 million. I wish it were the 
$700 million that one of the congressmen mentioned, but right 
now it is not. Again, addressing the repetitive loss problem 
would very significantly help us to increase our reserves and 
strengthen the soundness of the National Flood Insurance 
Program.
    Chairman Ney. Right now you are free of debt to the U.S. 
Treasury.
    Mr. Lowe. That is correct.
    Chairman Ney. This is probably something you cannot 
predict, but do you have people looking at future trends, and 
would you anticipate having to come back for appropriations?
    Mr. Lowe. Again, we have not had to come back for an 
appropriation since 1986. I certainly cannot predict the trend, 
but an average loss year for the NFIP is from about $750 
million to about $850 million, which basically means the 
program can handle that. When losses exceed that amount then 
the program runs into problems and we have to go to the 
Treasury to borrow.
    Chairman Ney. Questions from the gentleman, Mr. Watt?
    Mr. Watt. You obviously want the flood insurance program 
reauthorized, but I am not clear on what terms you would have 
it reauthorized. Is the Administration planning to take a 
position on the bills that have been introduced? And if so, 
when? And if not, is the Administration planning to come 
forward with a proposal itself under which it would like this 
reauthorization to take place?
    Mr. Lowe. I appreciate that. The Administration, as I 
understand it, does not normally take a position on a bill 
until after it has been reported out of committee. In this 
instance, what I have tried to do is to highlight for you, 
really in looking at both of the bills, the tools that we 
believe are necessary. Certainly, as I mentioned earlier, the 
multi-year authorization is important, but so are the 
flexibility in terms of definition and the understanding both 
bills seem to exemplify as it pertains to the cost share. Those 
of you who are concerned about people who may not be able to 
afford to either take advantage of a mitigation offer or to 
perhaps move elsewhere, this helps address that situation. So I 
commend the sponsors of both pieces of legislation. In the 
past, as has been mentioned, we have assisted, for example 
Congressman Bereuter, in developing that bill.
    Mr. Watt. But both of the bills, it seems to me, the 
central focus of both of the bills is to eliminate repeat 
users, either through mitigation or through getting them out of 
the ability to be in the program. What is your attitude toward 
that?
    Mr. Lowe. Again, as I testified, I really believe that much 
of what we are trying to do is really quite the same. I think 
we want to get people out of harm's way. I think that is what 
our mission is. I think that is the purpose of both bills. In 
that connection, I think that both dealing with actuarial 
premiums and/or even deductibles in a more realistic way will 
help provide us the opportunity, whether someone mitigates or 
not, to be able to address this problem to some extent. 
Obviously, I have heard a couple of times that somehow this 
program encourages people to live in the special flood hazard 
areas, and I am not convinced that is the case. But 
nevertheless, the purpose of this program, when it was 
authorized, was that it would in fact offer insurance to 
anyone. So the only question that we really have is upon what 
terms.
    Mr. Watt. Let me ask this question a little bit more 
directly, then. Would the Adminstration be happy with a 
reauthorization either single or multiple years that does not 
change the program?
    Mr. Lowe. Again, we are hopeful in the program end, and I 
think the administration might have a position later more 
directly on the tools that are necessary. The history that I 
understand that this program has had with Congress, has been 
one of trying to look at this program over many years, to 
determine the policy tools that are necessary.
    Mr. Watt. I do not think you are being responsive to my 
question, Mr. Lowe.
    Mr. Lowe. I know what you are trying to say, but I----
    Mr. Watt. I am trying to find out if you want this program 
changed or not. I guess that is the bottom line. Would you be 
satisfied with a reauthorization that does not do anything 
other than reauthorize the existing program, I guess is the 
question.
    Mr. Lowe. Let me put it to you the best way I can. If you 
reauthorize this program and you do not change it, then the 
only thing I can do is pretty much what I have tried to do 
since I have been here. That is to take every single mitigation 
program we have and try to leverage it against the repetitive 
loss problem. What have we seen? We have seen that the number 
of properties that I am able to, and this program is able to 
mitigate in one year is exceeded by the number of repetitive 
loss properties that are added. In other words, I can mitigate, 
let's say, 270 properties in a year, but I am adding to that 
list from 500 to 750--some are in the target group; some are in 
the bottom group.
    Mr. Watt. So you want more ability to mitigate.
    Mr. Lowe. We need more.
    Mr. Watt. You want more ability to mitigate.
    Mr. Lowe. We need more flexibility.
    Mr. Watt. Thank you, Mr. Chairman.
    Chairman Ney. I thank the gentleman.
    Mr. Bereuter?
    Mr. Bereuter. Thank you, Mr. Chairman. The gentleman from 
North Carolina asked a very fair question. I would have to 
reiterate that H.R. 253 does not force anyone out of the NFIP. 
It simply says if they refuse mitigation after that second 
flood of certain dimension, then they have to pay actuarially 
sound rates. You asked a very fair question at the end there, 
and I will answer for Mr. Lowe, from my perspective. We have 
toyed around with this legislation and this program long 
enough, and either we have reforms or I think we have to force 
a crisis by blocking reauthorization.
    I do have a couple of questions for Mr. Lowe. I very much 
appreciate your testimony and all the agency has done in the 
past in your successor position as well. What is your 
estimation of FEMA's due diligence or success in ensuring 
compliance for mandatory flood insurance programs, with 
homeowners who have federally insured mortgages? What more 
could be done?
    Mr. Lowe. I think we need to look for ways to do more. Some 
of what we have been trying to do since I think there was an IG 
report that raised this issue, is to sync-up our computer 
system. We would then have a better idea of when people are not 
complying, after a disaster when they have dropped their flood 
insurance that they were required to get in order to get 
assistance after a flood.
    Mr. Bereuter. Do you think we have had proper kind of 
effort exerted by financial institutions to cooperate in 
ensuring that in fact there is flood insurance for properties 
located within a flood plain for which mortgages are insured?
    Mr. Lowe. I have no reason to believe that those 
determinations have been incorrect. By the same token, we have 
found there seem to be policies that are falling in between the 
cracks. So we are spending a tremendous amount of our energy to 
increase our flood insurance policy base, not by necessarily 
new policies, which we are certainly interested in, but also by 
retaining existing policies. We are finding that what we are 
bringing in the front end, we are almost losing the same 
amount, if you will, out of the back end. That means we are 
dropping policies, policies that probably still require flood 
insurance. So we are trying to address that now in a number of 
ways, and I certainly can go into more detail if you would 
like.
    Mr. Bereuter. Mr. Lowe, as you know, the cost to taxpayers 
comes primarily for disaster assistance. We have larger and 
larger disaster assistance rolls because we have few 
disincentives. In fact, we have some real incentives with 
Federal and other public funds to locate in flood plain areas. 
But I would ask you a question with respect to Federal lands. 
There are more than some people might imagine that are within 
flood plains, and which have residences located upon them. The 
Association of State Flood Plain Managers recommends charging 
these properties as well, actuarial rates. Do you agree that 
this is a good idea? Are these properties causing a drain on 
the National Flood Insurance Program?
    Mr. Lowe. Yes. I think we definitely need to pay attention 
to those. I suspect it would be a reasonably large, relatively, 
percentage of our 10,000 or 48,000 list--either one. I think 
you are going to find a number of Federal properties. We do 
need to take another look. Again, whether we address it by full 
actuarial rates or a combination of full actuarial rates and 
deductibles, I think we have to kind of move and get off the 
dime. I think in that connection, Congress' help is very 
helpful, so that the American taxpayers and certainly property 
owners feel like their concerns have been fully considered 
before being hit, if you will, with a full actuarial rate or 
some higher deductible.
    Mr. Bereuter. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Ney. I thank the gentleman. Mr. Scott of Georgia?
    Mr. Scott. Yes, Mr. Lowe, the general thrust of this is the 
repeaters, the repetitive loss properties. Let me ask you about 
the mitigation process. I am fascinated to know why these folks 
repeatedly, consistently put their families and themselves in 
harm's way. And could it be that in the mitigation process that 
maybe the amount that is being offered for that purchase is 
insufficient to cover the balance on the payoff of their 
mortgage? Are we being fair with these people? I mean, it just 
seems to me that there has got to be a little bit more to all 
of this from the standpoint of that person and his family 
consistently putting himself in harm's way. Could you respond 
to that, if that is a problem?
    Mr. Lowe. Sure. There are a large number of reasons why 
people refuse mitigation offers. A lot of them have to do with 
not being able to meet the cost share, and different states 
have different rules on what that cost share is. Some states or 
communities can do more; some can do less. The average split is 
75 federal, 25 state or local. If that cost is passed on to a 
property owner, they may or may not be able to come up with it, 
which may have a tremendous amount to do with whether or not 
they take advantage of a mitigation offer. There are certainly 
other considerations as well. Aesthetics sometimes comes up, 
believe it or not. The impacts in that community on the tax 
base can have an impact. There are a lot of things that can 
come up.
    One of the questions that I have asked my staff is, what 
has been the impact of fair market value and mortgages on 
determinations of whether or not to accept a mitigation offer. 
What I am finding is that by and large if someone is talking 
about a first mortgage, it is not much of an issue. But if we 
are talking about a second mortgage, and somebody has a lot of 
money outstanding, so to speak, it can be more of an issue. 
Again, I think both bills that we are talking about today go a 
long ways to deal with that. Again, the example that I gave of 
the pilot project in Louisiana, which is again also occurring 
in Florida, both attempt to address this situation where there 
is inadequate resource, if you will, that a homeowner can bring 
to bear so that they can get out of a bad situation.
    I would also note one other thing. We have just completed a 
demographic study, and we have another one that is also in the 
works. We looked at 2.7 million properties in as many ways as 
we could against our repetitive loss group, both the large 
group as well as the target group. What we found is that it 
really is not a low-income problem. There is not a 
disproportionate number of low-income properties overall in the 
repetitive loss target group or in the broader group. However, 
there are some aberrations. The reverse of that is somewhat 
true, for example, in Louisiana. So that is a very real 
problem. But again, that is where we have to have the 
flexibility to be creative.
    I think we have the will, and the program has the will. I 
think we need the support of Congress and we need the 
flexibility. Again, in terms of mortgages and fair market 
values, if we have a situation where someone, because of 
repetitive flood losses is rapidly losing the value of their 
property, as was suggested, this may be the best offer that 
they have. But it is going to be a fair offer, and I suspect 
most people are going to frankly want to get out of a bad 
situation. They are not going to want to stay there with floors 
that never dry out and mold in the baseboards and all of those 
sorts of things. It is just a horrible way to live.
    Mr. Scott. So you believe that these two measures before us 
will give you the tools that you need?
    Mr. Lowe. I believe so--the flexibility in the definition, 
the resources, and certainly the reauthorization. Those are 
really key for us. Most of the other things we can work 
through. But again, we have the will to do it and to leverage 
all of our programs in a way that we have never had before. So 
I really want to take advantage of that.
    Chairman Ney. The time of the gentleman has expired.
    Mr. Blumenauer? Would you like to ask a question? I thank 
the gentleman.
    I want to thank the witness for his time.
    Mr. Lowe. Thank you.
    Chairman Ney. The next panel, panel three. I would note 
there are votes expected within probably the next 15 or 20 
minutes, so we will try to adhere strictly to the time clock. 
That way we can get in the witnesses testimony and the members 
of course would be able to come back after the vote.
    I want to welcome panel three, and we will begin with Chad 
Berginnis. He is the Flood Plain Management Program Supervisor 
in the Division of Water with the Ohio Department of Natural 
Resources. He has coauthored a comprehensive revision of model 
state flood plain regulations, drawing in part on his previous 
experience as director of the Perry County Planning Commission. 
We want to make sure you tell Mr. Speck we said hi. He was the 
State Senator that I replaced years ago in Ohio, so he is 
director of ODNR. Welcome.
    Fletcher Willey is the Chairman of the Government Affairs 
Committee, Flood Insurance Task Force of the Independent 
Insurance Agents and Brokers of America, an association 
representing more than half of all the independent insurance 
agencies in the country. Mr. Willey owns the Willey Agency in 
Nags Head, North Carolina, and has been in the insurance 
industry for nearly 30 years.
    Gerald Nielsen is from Metairie, Louisiana--Billy Tauzin 
and Baker can pronounce that better than I can, but I will give 
it a shot--Metairie, where he has been practicing law in the 
area of flood insurance. The Nielsen Law Firm handles National 
Flood Insurance Program related litigation on a national basis, 
and Mr. Nielsen has been the attorney of record in the majority 
of all case law in this area.
    Rick Willetts is the President and CEO of the Cooperative 
Bank in Wilmington, North Carolina, a state-chartered 
commercial bank with assets of $500 million. Today, he is 
representing America's Community Bankers, an association of 
banks which originate more than 25 percent of all mortgages in 
the United States, some of which are for properties in areas of 
high flood risk.
    I want to welcome the panel, and we will begin with Mr. 
Berginnis.

 STATEMENT OF CHAD BERGINNIS, VICE CHAIR, ASSOCIATION OF STATE 
                      FLOOD PLAIN MANAGERS

    Mr. Berginnis. Thank you, Mr. Chairman, and good afternoon.
    In June, 1998 and one week into my job as Perry County 
planner, a flood devastated a small Appalachian village in our 
county of Corning, Ohio. Within nine months, we developed a 
hazard mitigation grant program project that included 59 
structures. The mitigation options included acquisition, 
elevation, retrofitting things such as relocating utilities, 
were the options chosen by participants. One of those 
participants, Gertrude Kerrigan, who had flood insurance, 
declined to participate later on because she said I will 
probably be long gone before the next flood comes. Hazel Cales, 
who also had flood insurance, was reluctant at first, but later 
chose to elevate her home. Afterwards, she told the mayor of 
Corning, I sleep through the night now and my furniture no 
longer sits on concrete blocks inside of my living room.
    These experiences illustrate benefits and social 
complexities of implementing the National Flood Insurance 
Program and flood mitigation. After nearly 35 years, the NFIP 
has been successful at reducing flood losses nationally, 
however some modifications are necessary to increase this 
success.
    My name is Chad Berginnis, and I represent the Association 
of State Flood Plain Managers as vice chair. We are an 
organization that represents over 5,000 people that are mostly 
State and local officials that deal daily with the National 
Flood Insurance Program, the flood plain management and 
mitigation programs. I want to use the balance of my time to 
discuss repetitive loss, NFIP reauthorization and some future 
issues of the NFIP.
    Repetitive losses are a drain on the flood insurance fund. 
The association believes that an overall repetitive loss 
strategy should include implementing mitigation that achieves 
measurable results, implementing cost-effective mitigation that 
is in the best interest of the NFIP, implementing mitigation 
that is technically feasible, having a sensitivity to low-
income homeowners, allowing flexibility in choosing mitigation 
options, and utility of different mitigation programs. Two ways 
to implement this type of strategy would be to actually 
implement a new initiative based on what we believe is a 
blending of the best elements of H.R. 253 and H.R. 670, and 
modifying the existing mitigation insurance mechanism, ICC, or 
increased cost of compliance coverage.
    Both H.R. 253 and H.R. 670 have a number of good 
provisions, including a definition of repetitive loss 
properties that at least defines the universe of properties to 
be considered; an appeals mechanism to ensure due process for 
property owners; funding that is ultimately paid by the flood 
insurance fund; the charging of actuarial rates on structures 
if mitigation is refused; and provisions to address structures 
on property leased from federal entities. Additionally, upon 
analysis of these bills, the association recommends that the 
committee should direct FEMA to work with State and local 
partners to develop procedures for assessing mitigation 
options. There should be a recognition that for certain 
properties, subsidized flood insurance is the best mitigation; 
that FEMA works directly with property owners, but only after 
the state and community are unwilling to participate; and that 
the Federal government not become a landowner regardless of the 
circumstances.
    The increased cost of compliance mitigation insurance has 
not realized its full potential and could be modified to 
effectively tackle the repetitive loss issues. Currently, ICC 
collects over $80 million, yet since 1997 under 1,100 claims 
have been paid, averaging $11,400 per claim. The maximum claim 
amount allowed will increase from $20,000 to $30,000 this May. 
The association believes there are two reasons for this 
underutilization: FEMA's tight interpretation of the statute, 
and actually some language within the statute itself. We have 
provided the committee with three pages of recommended changes.
    Briefly, I would also like to comment on the 
reauthorization of the NFIP. The association believes it is 
reasonable to reauthorize the NFIP on a three-year basis, which 
reserves the opportunity for congressional oversight. Then I 
would like to conclude by discussing the future of the NFIP. 
The Association of State Flood Plain Managers is both excited 
and apprehensive. The map modernization program and FEMA's 
effort to partner with State and local communities have been 
tremendous. However, we are much more apprehensive about 
proposed changes to existing mitigation programs. The flood 
mitigation assistance programs was authorized by this committee 
in 1994, and is funded by flood insurance policyholders. The 
2004 administration budget blurs the line between FMA and a new 
pre-disaster mitigation program. We would urge the committee to 
express its intent that FMA be independent of this new program.
    Our final area of concern is uncertainty associated with 
FEMA's placement in the Department of Homeland Security. The 
NFIP is only one of the department's many responsibilities and 
we hope that programs like the NFIP continue to get the 
resources and attention required to face this nation's primary 
natural hazard.
    Chairman Ney. I would want to note to the witness to sum up 
because the time has expired. Thank you.
    Mr. Berginnis. Thank you.
    The village of Corning and its residents have a more 
promising future due to the NFIP and FEMA's mitigation 
programs. The programs work. Let's work together to make these 
programs even better.
    Thank you.
    [The prepared statement of Chad Berginnis can be found on 
page 49 in the appendix.]
    Chairman Ney. I want to thank the gentleman. We will move 
on to our next witness, Mr. Nielsen.

  STATEMENT OF GERALD NIELSEN, NIELSEN LAW FIRM, METAIRIE, LA

    Mr. Nielsen. Good afternoon. My name is Gerry Nielsen. I am 
a lawyer from New Orleans. My job is to go before federal 
judges, sometimes State Court judges, all over the United 
States and I attempt to explain to those judges what Congress 
intends for the National Flood Insurance Program and what FEMA 
intends. Right now, there is a structural problem that is 
preventing me from doing that job effectively, and I am 
bringing that idea to the Congress' attention because the 
Congress is the only place where I can go to have a 
jurisdictional statute fixed.
    In 1983, Congress amended the jurisdictional statute to 
provide for exclusive jurisdiction in the federal courts. But 
ever since then, the claimants have never stopped trying to 
maneuver these claims back into the State Courts. So it is an 
incessant, expensive battle. Lately, they have been meeting 
with some success. The word ``claim'' in the statute, federal 
judges are looking at that under removal jurisdiction, which is 
a very narrow analysis, and saying, well, wait a minute--that 
word ``claim''--you look at that statute; they are just talking 
about the claims under the policies. I have got no basis for 
being in federal court for policy issuance, policy 
underwriting--all of the operations pursuant to which we put 
the U.S. Treasury at risk. That is the part that agents and 
companies do. We handle all of that.
    So we are having cases falling into the State Court, and we 
are having an increase of artful pleadings of people changing 
the kinds of claims they are making to get around your commend 
of 4072. The biggest problem this creates is agents. Agents are 
getting sued at a much higher rate, just for forum 
manipulation. Now, the position of the states is just to the 
opposite. The state of California and the state of Florida, who 
have great interest in the program, have both held through 
their courts--no, we are going to look straight up at Congress' 
intent; there is no way Congress intended that the jurisdiction 
of how you put the U.S. Treasury at risk is in the States--50 
different sets of State Courts--and federal court jurisdiction 
is only over how the money goes out the door. So in those two 
key program states, jurisdiction over any claim is in the 
federal courts.
    The insurance commissioners of the States of Texas, 
Mississippi, North Carolina and South Carolina are all of 
accord. They have signed sworn affidavits that are attached to 
my written testimony stating that they have neither 
jurisdiction nor regulatory control over anything involving the 
NFIP. So I have got the federal judges sending me to the State 
Courts, and I have got the State Courts telling me to be in 
federal court. My job is to build a uniform body of case law. 
It is a problem.
    I have presented for the committee a proposed revision of 
the statute which says in essence that any dispute arising out 
of participation or attempted participation in the program must 
be in the federal courts. If you pass this statute, what do you 
get? Three things: One, you get a stoppage of all the legal 
bills that are being spent in these arguments over 
jurisdiction; two, you start to get the development of a 
unified, uniform system and body of case law over all program 
issues. Then when you get that, you start getting lessened 
legal bills on all issues all over the map. What do citizens 
get? A citizen has no interest in their legal dispute being 
tied up in the courts for three years over where it is supposed 
to be. My last 10 appearances before appellate courts, seven 
out of ten of those were discussions of jurisdiction. We never 
got to the merits. No citizen wants that.
    Now, I quickly point out, I am not asking the Congress to 
in any way restrict anyone's remedies. We are just talking 
about jurisdiction here. A federal judge can ruin my client's 
day as easily as a State Court judge. But where that line is 
drawn between what federal law governs and what State law 
governs, has to be drawn on a uniform basis across the country 
so that the deal anyone gets is equal in California as opposed 
to New Jersey--that it is the same all the way across the 
country. So if we make clear that the judges that are deciding 
what the law is for this unified national program are federal 
judges, we get lower costs; we get uniformity of decision and 
predictability in the law; and we get efficient litigation.
    The states are the ones saying this is what we ought to 
have, and it is the federal judges who are hamstrung by their 
own limited jurisdiction under the Constitution, who are now 
saying otherwise. And no one is saying that the current 
situation is what Congress intended.
    Thank you for hearing me.
    [The prepared statement of Gerald Nielsen can be found on 
page 69 in the appendix.]
    Chairman Ney. I thank the gentleman for his testimony.
    Mr. Willey?

STATEMENT OF FLETCHER J. WILLEY, GOVERNMENT AFFAIRS COMMITTEE, 
FLOOD INSURANCE TASK FORCE CHAIR, INDEPENDENT INSURANCE AGENTS 
                     AND BROKERS OF AMERICA

    Mr. Willey. Thank you, Mr. Chairman.
    I spoke earlier with Congressman Jones in the room, and he 
wanted me to thank you for sponsoring the bill that renamed the 
potato to freedom fries.
    Chairman Ney. We appreciate that. My relatives in France 
are not real happy, but we appreciate Walter's support.
    [Laughter.]
    Mr. Willey. Thank you, sir.
    My name is Fletcher Willey, and I am speaking today on 
behalf of the Independent Insurance Agents and Brokers of 
America. The NFIP provides the only way that homes and 
businesses can be protected from catastrophic floodwaters. The 
private insurance industry will not and has not come to the 
table to provide coverage for this kind of exposure. Although 
the independent agents and brokers of America have not taken a 
position on the two bills before us today, it is clear that 
reforms are necessary to address certain operating losses and 
to make the NFIP actuarially sound.
    We hope that we can work with you on this reform, because 
our members have the expertise and the experience serving our 
flood policy holders covering billions of dollars of property. 
This is just not a professional matter for me. I live on 
Roanoke Island, in the flood plain along coastal North 
Carolina, so I have a personal investment on flood protection. 
Today, we will outline the five principles that the independent 
agents support for improving the flood program. First, we need 
to strengthen the building regulations on both new construction 
and improvements of existing buildings. Experience with the 
program shows us that only 4 percent of the repetitive loss 
properties were built when the communities began enforcing 
elevation requirements. Second, in creased compliance with 
mandatory flood insurance purchase requirements show that only 
25 percent of the flood plain have flood coverage. We propose 
that all insurance companies need to inform property owners 
that their homeowners policy does not cover flood damage.
    Third, the NFIP should have additional resources for 
mitigation. This way, the program can take action to prevent 
future losses. There are two ways to do this: one, buyouts to 
move the most frequently damaged risk; and grants to elevate 
the other risky properties. Multiple loss properties account 
for $200 million per year in claims. These risks are subsidized 
by everyone else. Four, we need to stop the abuse of the 
program with multiple claims. Some properties have collected 
five to six times their full replacement costs from previous 
claims. Five, we need to require mandatory disclosure of flood 
claim history so that new buyers will not knowingly buy a known 
flood risk property.
    [The prepared statement of Fletcher J. Willey can be found 
on page 103 in the appendix.]
    Chairman Ney. The time of the gentleman has expired. The 
reason I want to mention that to say the time, we have about 10 
minutes until the vote ends, so if we give the last witness 
five minutes, and then we will come back--whoever would like to 
come back. Thank you.
    Mr. Willetts?

    STATEMENT OF FREDERICK WILLETTS III, PRESIDENT AND CEO, 
    COOPERATIVE BANK, WILMINGTON, NC ON BEHALF OF AMERICA'S 
                       COMMUNITY BANKERS

    Mr. Willetts. Good afternoon, Mr. Chairman, and members of 
the subcommittee. Thank you for the opportunity to testify 
today.
    My name is Frederick Willetts, III. I am president and CEO 
of Cooperative Bank in Wilmington, North Carolina. Cooperative 
Bank is a State-chartered commercial bank with total assets of 
$500 million. We operate 20 offices from Virginia Beach, 
Virginia to Myrtle Beach, South Carolina. I am testifying today 
as a member of America's Community Bankers. The NFIP is 
important to every mortgage lender in the United Stats whose 
lending territory, like mine, includes properties in areas of 
high flood risk. We and our customers have come to rely on the 
NFIP as a primary source of affordable flood insurance.
    ACB supports attempts by the Federal government to begin 
stemming the costs associated with repetitive loss properties 
to taxpayers. These efforts must protect mortgage lenders by 
giving them advance notice of any actions that would impair the 
homeowner's ability to repay the mortgage or recoup the value 
of the property. Also, Congress must clarify that it does not 
intend to treat as repetitive loss properties those that have 
experienced losses that are not expected to reoccur. We also 
commend Congress for expediting NFIP authorization earlier this 
year. However, ACB believes that any bill to reform the NFIP 
must extend NFIP authorization for a period of at least four or 
five years.
    ACB supports increased flood insurance premiums under the 
circumstances identified in H.R. 670 and H.R. 253, as a way of 
making property owners take additional responsibility to 
prevent multiple claims. However, legislation should take into 
account circumstances that might unduly imperil the homeowner, 
the lender or other affected parties. Very large increases in 
premiums could impair the property owner's capacity to pay and 
would likely affect the value and the marketability of their 
property. Therefore, the mortgage lender should be notified 
formally of the planned premium increase in advance, and at a 
time when intervention might still be possible.
    A lender's collateral could also be put at great risk by a 
mitigation buyout offer. Lenders deserve some assurances that 
any loan secured by a property targeted for demolition will be 
repaid with the proceeds of the buyout. We recommend that the 
bills provide for notice to the mortgage lender or servicer of 
a buyout offer made under the mitigation program. ACB believes 
it is essential for Congress to clarify that it does not intend 
to deny flood insurance coverage to properties in broad 
geographic areas that might experience large numbers of losses 
as an aberration. For instance, my home region of coastal North 
Carolina has recently experienced an unusually large number of 
hurricanes, one of which resulted in a 500-year flood. It would 
not be practical for FEMA to respond to such circumstances by 
seeking extensive mitigation or relocation. Entire communities 
would be affected. Legislation should clarify the expected 
scope of circumstances under which FEMA might deny, cancel or 
otherwise change the availability of flood insurance under the 
bills to avoid such unintended effects.
    Again, thank you for the opportunity to testify today. I 
would be pleased to answer any questions you might have.
    [The prepared statement of Frederick Willetts III can be 
found on page 98 in the appendix.]
    Chairman Ney. I thank the gentleman for his testimony. We 
will break to vote, and then if you could bear with us, I 
appreciate it, we will return. Thank you.
    [Recess.]
    Chairman Ney. The committee will come to order. I want to 
again apologize to the witnesses. We had to go cast a vote. I 
think we had finished the testimony of the last witness. I 
would open it up to questions.
    Mr. Bereuter?
    Mr. Bereuter. Thank you very much, Mr. Chairman. I 
appreciate you continuing the question period so we could come 
back up and vote for that purpose.
    Mr. Willey, as an insurance agent, how can we increase 
compliance with the mandatory purchase requirements for flood 
insurance? Why is there not a better record at this point?
    Mr. Willey. Thank you for the question. We would like to 
see a requirement that insurance companies notify people that 
they must buy flood insurance from the National Flood Insurance 
Program, because homeowners policies do not cover flood. We 
think it is a notification problem. I know that the National 
Flood Insurance Program is trying to find ways to notify 
people, but we think the homeowners' carriers should tell 
people that they need to get a flood policy to be covered for 
flood.
    Mr. Bereuter. I would like to ask you, Mr. Willetts, maybe 
you are the best person to start with, at least on this 
question. How many mortgages, what percentage of mortgages do 
you think in this country are federally insured or federally 
backed?
    Mr. Willetts. Congressman, I would not have a way of 
estimating that. I would assume that the majority through 
brokerage arrangements as well as direct loans through banks 
and thrifts.
    Mr. Bereuter. Do we have a requirement now which applies to 
the issuance of mortgages that are not federally backed, and 
the mandate for flood insurance to cover properties that are in 
the flood plains?
    Mr. Willetts. I am not aware that that requirement extends 
beyond federally insured financial institutions, congressman.
    Mr. Bereuter. I think you are right. I could ask any of you 
to respond to the concern that people may purchase a property 
for which there has already been two floods that exceed in 
value $2,000, for example, or $8,000, as the case in our bill. 
Perhaps in that case the decision has not been made yet about 
whether or not they are going to accept mitigation when they 
sell. That is a pending issue. How do we serve adequate notice 
to the property owner who may be considering purchase of that 
property?
    Mr. Willetts. I am not the attorney in the group, but I 
will attempt to answer that. I think some method of recording, 
some device at the public record would be perhaps the best way 
to accomplish that.
    Mr. Nielsen. You could do it through the public record, 
having something recorded against the property, or on FEMA's 
Web site, which is quite extensive. You could have publication. 
One of the problems FEMA seems to have with this is that they 
are torn between their own objectives and the Privacy Act. 
Right now, the companies have to enforce various provisions of 
the policy and need information as to what has happened on 
prior claims, and FEMA is really torn as to whether or not they 
are supposed to be giving us that. So in terms of prior claims 
for U.S. Treasury funds, there should be no claim of privacy. 
That would seem to me strange, that if you have made a claim 
for public funds that is a public record, and there should be a 
ready source or a list of that information that anybody can get 
at any time.
    Mr. Bereuter. Mr. Nielsen, I noted your concern about the 
jurisdictional question, about the money being spent there, and 
I take that quite seriously. I think, because I recall that you 
have specific language that you are suggesting in leaving for 
us to consider. Is that correct?
    Mr. Nielsen. Yes. It is on page 10 of the written 
testimony.
    Mr. Bereuter. Thank you.
    Mr. Willetts, on page two of your testimony you state that 
any fix should take into account circumstances that might 
unduly imperil the homeowner of the land or other affected 
parties. You mention that you support an appeals process 
similar to that included in the Baker bill that would allow an 
owner of property to appeal a decision on mitigation. Are there 
any changes, requirements or stipulations that you would 
include as a part of the appeal process?
    Mr. Willetts. Any changes to the requirements?
    Mr. Bereuter. Any changes or stipulation or requirements to 
that kind of appeals process, to the language in his bill? Do 
you have any specific suggestions as to how that might be 
changed or improved?
    Mr. Willetts. There has been discussion about architectural 
integrity, for one thing, in altering a building. Obviously, 
the question we have brought up several times today about 
sufficient funds to pay off the loan. I would think that the 
word ``practical'' is probably too broad a term, but there 
could be other cases I cannot think of immediately.
    Mr. Bereuter. Mr. Chairman, I know I have the red light, 
but may I have Mr. Berginnis respond to that question, too?
    Chairman Ney. Without objection.
    Mr. Bereuter. Thank you.
    Mr. Berginnis. I think as far as the appeals process, 
Congressman Baker raises several points in his proposal 
regarding things like historic structures. Those could be 
things handled perhaps in an appellate-type process, as opposed 
to an exception kind of criteria where you would exempt 
actually a whole class of structures.
    Mr. Bereuter. Thank you.
    Thank you, Mr. Chairman.
    Chairman Ney. I would point out to the gentleman, I have 
really two brief questions. If you would like to continue, I 
just have two brief questions. It would be up to you.
    The first question I would have is for Mr. Berginnis. The 
Association of Flood Plain Managers supports the introduction 
of actuarial rates after mitigation is refused, following a 
second loss. What is your view on someone who has paid several 
thousand dollars in premiums over the course of many years, 
only to lose their coverage after a couple of thousand dollar 
claims?
    Mr. Berginnis. This is a situation, and again it is a point 
made in the oral and written testimony, where there needs to be 
a realization that there could be circumstances where the best 
mitigation is the continuance of the subsidized flood 
insurance. I think the example, Mr. Chairman, that you gave is 
very appropriate to that, where a person has paid a lot of 
premium over years. They may have four, five, six claims, each 
of them $1,000, yet there may not be a cost-effective way to 
actually do mitigation. And so potentially in that case, 
continuing subsidized flood insurance would be appropriate.
    Chairman Ney. Thank you.
    The other question would be for Mr. Willetts. I noted in 
your testimony it says that to avoid such problems in the 
future, ACB advocates a multi-year extension of NFIP, authority 
for a period of at least four to five years. I think Mr. 
Bereuter's bill has seven, or up to 2007, if I am correct. I 
just wondered, is the rationale in any way tied to actuarial 
tables or what is the interest that it would serve to help you 
better be able to be involved?
    Mr. Willetts. I think to avoid the potential train wreck 
that we faced at the beginning of this year.
    Chairman Ney. Mr. Bereuter, do you have additional 
questions?
    Mr. Bereuter. Thank you, Mr. Chairman.
    I would like to go back to Mr. Berginnis, if I could, to 
the discussion you had there with the chairman in response to 
his question, which is certainly one of the important questions 
we need to consider. What about that person that really does 
not want to proceed or is unable to proceed, in their judgment, 
to accept the mitigation offer? Now, that would be a problem 
only, wouldn't it, when we do not have 100 percent of the 
mitigation costs paid for by the Federal government--75 
percent, for example, and 25 percent by State or local? Then 
would you think that regardless of whether or not the person 
wants the mitigation to go forward, it ought to go forward, 
since it is not a matter of them not being able to afford it, 
but simply they choose not to do that and continue to live at a 
high-risk location without mitigation?
    Mr. Berginnis. Well, I think--and again there are so many 
factors involved as far as offers of mitigation--but really the 
concept that the association supports is that in these 
repetitive loss situations, that a property might go through an 
evaluation of cost-effectiveness, making sense to the flood 
insurance fund, and go through this process to find out if in 
fact the property itself can be mitigated. I would think that 
there would probably be limited circumstances where somebody 
would continue with subsidized flood insurance, but certainly 
that could be affected by things like cost-sharing, when you 
are dealing with, for instance, a low-income homeowner. If the 
mitigation option were to be 100 percent federal, for instance, 
for those folks, then a reasonable expectation would be that 
they would be able to accept the mitigation offer.
    Certainly, mitigation is not just--we need to have the 
flexibility to consider all mitigation. It is not just buyouts. 
It is elevations. It may be doing minor retrofitting. Somebody 
could have a furnace that has been repetitively damaged in a 
flood five or six times, and the appropriate mitigation there 
may be to elevate the furnace unit or relocate it to a higher 
level, and you have eliminated the insurance, or at least 
reduced the insurance risk.
    Mr. Bereuter. And wouldn't it be logical to assume that 
proper management, common sense management on the part of the 
federal agency would suggest that where mitigation is 
extraordinarily expensive or not really very realistic, they 
simply will not make mitigation offers, and therefore this 
relieves the person from being struck out by two strikes and 
you are out, because there are two conditions. One is, there 
have been two losses at least, which total $1,000 each loss or 
more, and that an offer be made and refused. In this case, the 
offer probably we assume would not be made. Isn't that what you 
would hope out of a common sense kind of application of the 
federal agency's requirements? I hope.
    Mr. Berginnis. Yes. And I think that would be reasonable--
if it is not cost-effective, an offer would not be made. Then, 
again, it would just continue to go----
    Mr. Bereuter. It continues to be there. I have one final 
question, Mr. Chairman. Thank you for your patience.
    Mr. Willey, you suggest that an accessible electronic data 
base of flood losses be created to facilitate disclosure of 
flood information. Has your organization been in contact with 
FEMA regarding the creation of such a data base by chance? Are 
there currently any procedures used to elicit flood information 
from property sellers, of which you are aware? The latter could 
be open to any of you, if you know.
    Mr. Willey. No, sir. I think the problem is that I have 
understand that the disclosure runs contrary to the privacy 
law. I might want to refer to my friend.
    Mr. Nielsen. That would be something that Congress could 
look at, is that all of this is being done with public funds. 
To say that there is a privacy interest, as I said earlier, 
seems inconsistent. So if you could relieve FEMA of that 
problem for the specific purpose of allowing lists on these 
things to be published, to where anybody could go look at them, 
then that would alleviate notice problems. Also one of the big 
problems we have in flood litigation is a failure to inform 
claim, where you did not tell me. Well, to the Supreme Court, 
that is strange because the flood program is a law, the policy 
is a law. But if we are holding back information that might 
give rise to that type of claim being validated.
    Mr. Bereuter. I appreciate that suggestion. We are going to 
look at that. It would therefore be due diligence for any 
financial institution or any lawyer helping a person to 
purchase to check that list if it is available and publicly so.
    Mr. Nielsen. Correct.
    Mr. Bereuter. Mr. Chairman, thank you very much.
    Chairman Ney. I thank you, Mr. Bereuter.
    Mr. Bereuter. Thanks to all the witnesses.
    Chairman Ney. I want to thank the witnesses for coming to 
the Capitol today and for your very helpful testimony. We have 
a duty to do something with the issue, and as we go through the 
next several weeks, we want to keep your views in mind. Also I 
want to note Mr. Bereuter and Mr. Blumenauer have a very well 
thoughtful crafted, what I would call a base situation to begin 
with on that bill.
    So I appreciate your involvement today and Mr. Blumenauer, 
who was here, and the rest of the members.
    The chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and place their responses in the record.
    With that, the hearing is adjourned.
    [Whereupon, at 4:25 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             April 1, 2003

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