Flooding Harrisburg

HARRISBURG – Homeowners, housing counselors and home-finance professionals all forecast the same dark outcomes from the impacts of the Biggert-Waters Flood Insurance Reform Act of 2012 at Monday’s state House Democratic Policy Committee hearing: homelessness for hard-hit residents, a stagnant housing market leading to a further depressed economy and troubled banks left holding the bag.

State Rep. Rick Mirabito, D-Williamsport, co-chaired the hearing with Rep. Kevin Haggerty, D-Dunmore, with 15 other state representatives – two Republican – in attendance.

Jeff Smead, a homeowner in Muncy, said he and his wife bought their home, which sits in a flood zone, in 1990 and worked hard to pay off their mortgage early. A line of credit they took out against the home’s equity required flood insurance – and when the flood insurance reform act was passed, “We knew nothing about this or the horrendous effects it would have on our lives, our financial situation and those of our neighbors,” Smead said. “Everything was kept very quiet, no notifications, no sound from our federal legislative representatives, nothing.”

In October, they heard by word of mouth of the pending financial tsunami that was to hit. Their annual flood insurance premiums went from $756 to more than $11,000.

Smead said it jumped so high due to them completing an elevation certificate, a Federal Emergency Management Agency representative allegedly told them – despite this largely being a requirement. Their protests brought the rate lower, but the bill will increase 25 percent a year until their full actuarial rate is met.

“Who is protecting us now?” Smead asked. “… Many working, middle-class families will be homeless if Biggert-Waters is not repealed or help is not forthcoming. Credit will be ruined, people’s lives will be crushed and there will be a housing market crash.”

Smead also noted he wants to hear from Gov. Tom Corbett’s office on the matter. “The silence is deafening,” he said.

John Eck, chairman of Old Lycoming Township supervisors, said these “exorbitant increases in flood insurance premiums … amounts to a ‘taking’ of their properties by the government.”

“There can only be one outcome … These floodplain properties will gradually become vacant, fall into ruin and possibly become blight,” Eck said.

He emphasized the legislation affects all, as the tax burden will be shifted to the remaining homes and “it will eventually affect every property owner in every municipality,” Eck said.

Eck suggested the legislation be repealed, that the temporary moratorium for grandfathered rates is not sufficient and certain properties be bought out through a federal buy-out program.

Otherwise, he predicted, “A serious taxpayer revolt may be just around the corner if legislators at all levels of government don’t quickly and swiftly reverse the effects of (the act).”

Beth Brown, certified housing counselor of Consumer Credit Counseling Service of Northeastern Pennsylvania, did the “simple math” that should have been done prior to the law’s passage, which leaves hardly any breathing room for those in the median income for a household in Lycoming County. When homes go into foreclosure, property values will drop, she said, leaving people homeless and mortgage companies taking a loss. She noted many homeowners did not know their flood insurance was being federally subsidized when they purchased their properties until this saga began to unfold.

“My faith continues to be shaken with some of those we trust in government, that they could not foresee the results of such an action as (this act). It is but simple math,” Brown said.

John Frey, vice president and chief compliance officer of Jersey Shore State Bank in Williamsport, said to make no mistake – “Without the permanent fix of the FEMA problem at the federal level, the citizens, both private homeowner and business owner, will suffer severe economic consequences,” creating what he called a “domino effect” – houses won’t be sold, causing appraised values to sink, and many may become homeless. Banks will lose money, he said, and the entire real estate market will suffer.

“(This) may cause companies located in these areas to get out, taking with them the jobs that are the economic lifeblood of the area. This is the picture (Biggert-Waters) has painted for us,” Frey said.

He hopes the state Legislature can find a solution until Congress does, as the “next destructive phase” of the act looms on the July horizon, to require banks to retroactively escrow for flood insurance on all flood-prone properties.

Aron Carter, senior vice president of Penns Wood Bancorp Inc., which owns Jersey Shore State and Luzerne banks, said the “typical demographic” of those affected aren’t those living high on the hog, but the retired couple living on a fixed income, those living paycheck to paycheck, those with kids in college, those with a disability or the small business owner.

“These are real people, not just statistics,” Carter said.

On behalf of his company, he implored the Legislature to offer some type of subsidy or tax credit to make the situation more affordable for homeowners. The situation also is frustrating for the banks, he said, as they are under the federal law, as well.

“We want to keep people in their homes,” Carter said.

Kim Skumanick, president of the Pennsylvania Association of Realtors, spoke of the “ripple effect on the real estate market” as home sales become impossible in these areas, and there will be a reduction in real estate transfer tax revenues in the state.

She believes there were four causes to this crisis: unintended consequences from the law, its implementation, flood map updates and insurance rating errors.

FEMA introduced needless complexity with the law, and homeowners weren’t warned of what was to come, she said. She advocates that FEMA do an affordability study, provide for installment payments and other protections. Further, homeowners have gotten different quotes for the same property, ranging thousands of dollars, to which she attributes a lack of FEMA training for the insurance agents.

Skumanick said her association backs the Homeowners Flood Insurance Affordability Act that would further delay the act’s major rate changes until the affordability study is done and a longer-term solution is developed.

Mirabito said the solution won’t be “one size fits all,” but several options need to be examined: To make funds available for mitigation; to have a buy-out program; and stabilize the real estate market for those who want to stay in their homes.

“I think we have a responsibility to do what we can on the state level while the federal processes go on,” Mirabito said.