If Congress takes one lesson from the devastation wrought by Hurricane Irene, it should be that it needs to reauthorize the National Flood Insurance Program ? and fast. Without it, home sales in too many areas will grind to a halt, and taxpayers will find themselves on the hook for yet more expenses.
Let's be clear: Federal flood insurance is not a questionable expenditure or pork-barrel politics. This is a longstanding and critical program used by more than 5 million American families in 29,000 communities nationwide ? many of them here in Virginia ? and one that covers $1.2 trillion in assets. (In fact, about 97 percent of the U.S. population lives in a county that has declared a major flood disaster in the last 20 years.)
We've all seen the news and heard the statistics. Torrential rains. Rivers overflowing. Homes and businesses inundated. Hurricane Irene alone caused more than $16 billion worth of damage along the East Coast. FEMA estimates that a mere 4 inches of flooding would cost a typical homeowner almost $30,000 in repair, replacement and cleanup.
That's why anyone wanting to buy a home in an area with the potential for flooding cannot get a mortgage without first getting flood insurance. Lenders see the numbers and want to protect their investments.
But at the same time, insurers won't offer flood coverage; the risks simply outweigh the profit. That's why, in 1968, the federal government stepped in with the NFIP. In exchange for localities working to mitigate flood damage, the government offered insurance coverage at reasonable rates.
It can do this without burdening taxpayers because it doesn't have the same overhead as the private sector ? it doesn't pay taxes or need to show a profit to shareholders. And ? with the exception of payouts for Hurricane Katrina ? the program has always paid for itself.
The result is that today, anyone looking to purchase a home near the coast or by a river or anywhere prone to flooding will need the NFIP to get a mortgage. Without it, the real estate market will grind to a halt in some of the most populous regions of the commonwealth.
And with every home sale that's lost, the economic impact ripples out ? to the contractors, the landscapers, the movers, attorneys, appraisers and everyone else who benefits from a sale.
It's happened already. Last year, when Congress allowed the NFIP to lapse briefly, 47,000 home sales across the nation were delayed or cancelled. In this economy, the last thing we need is to create that kind of roadblock again.
But the NFIP is important for another reason: It protects taxpayers.
When people lose their homes due to flooding, one of two things will happen: They will receive federal disaster aid (in fact, over the past 60 years, two-thirds of all presidential disaster declarations were flood-related), or they will have insurance to cover their losses.
The first option comes out of taxpayers' pockets. The second doesn't. Without a program backed by the federal government, private insurers ? if they step up to the plate at all ? will price most people out of the market.
Today, even with NFIP's low rates, the average homeowner only keeps the policy for three years before canceling it. (Lenders typically require the insurance only at purchase.) At higher prices they would cancel the policies even sooner, and taxpayers would foot even higher disaster-recovery costs.
A third option ? not helping uninsured homeowners ? isn't really an option at all. Because the federal government (through Fannie Mae, Freddie Mac and the Federal Housing Administration) backs more than 90 percent of the country's mortgages, those agencies will end up footing the bill if homeowners abandon properties they are unable to rebuild.
The fact is, we need flood insurance, and only the federal government is in a position to provide it cost-effectively. Yes, there are issues with the NFIP. It's not a perfect program. But it is far, far better than the alternative.
Congress understands this yet is dragging its feet on renewing it. A reauthorization bill passed the House and eventually passed the Senate Banking Committee. It's now waiting for the full Senate to vote, after which the two bills need to be reconciled.
But it has taken too long already. The program will expire on Sept. 30, and National Association of Realtors economists point out that each day without it will mean more than 1,300 cancelled or stalled home sales across the country.
It's time to get on the ball. Congress needs to act quickly and decisively ? and pass the extension. The housing market and the nation's economy depend on it.
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