The Senate Banking Committee and one of its subcommittees dealt this week,
however superficially, with two issues that should be of interest to
a lot of homeowners. Hopefully these won't be problems that they have
just teed up and then punted into obscurity. Both are worthy of discussion if
Chris Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban
Affairs and Charles Schumer, Chairman of the Joint Economic Committee both made
statements on April 11. Dodd was concerned with homeowners' insurance
issues, especially on the gulf coast but certain to not be limited to that area
while Schumer was seeking relief for homeowners in the midst of the subprime
Senator Dodd, in an opening statement before a hearing on "Availability
and Affordability of Property and Casualty Insurance in the Gulf Coast and Other
" expressed concern that insurance coverage is becoming
increasingly difficult to obtain or afford in many coastal areas. Insurers,
he said, are pulling out of high-risk areas and others are dropping coverage
such as for windstorm damage. Even where coverage is available, rates and deductions
are rising to the brink of unaffordable.
Dodd, quoting from a Chicago Tribune article told of a funeral home owner along
Mississippi's Gulf Coast who saw his pre-Katrina insurance premiums of
$61,224 for $7 million in coverage skyrocket post-storm to $781,000. Unable
to handle that amount he reduced his coverage to $2 million for which he is
paying $122,113 each year. He also referred to a Palm Beach Post news story
about a local resident who opened her windstorm insurance renewal notice to
find that her premium has increased by 194 percent to $7,443.
Citing the numerous hurricanes along the Gulf and Atlantic Coasts, the Northridge
earthquake, wildfires throughout the west, and the North Dakota Red River floods,
Dodd said that the lack of affordable insurance is increasingly
a problem for homeowners throughout the country. Many states, he said, have
attempted to address the problem by, for example, setting up high risk pools
but the states cannot be expected to handle the problem on their own. Instead
this is a problem deserving of national solutions which must be crafted to make
sure that Americans have access to affordable insurance but that taxpayers are
not burdened by "the risk of losses that are properly borne by insurers and
The Senator proposed four steps that Congress and the Administration should
take to provide relief for homeowners and businesses in the coastal areas of
- Tax deductions should be provided for homeowners for insurance premiums
in areas where those premiums have seen significant increases. Deductions should
be available to working and middle income families and be capped individually
and also nationally so as not to exceed $100 million each year.
- The country should increase investment in mitigation activities above
the $100 million currently provided by FEMA to help communities to address the
risk of loss to their residents. Mitigation funding should at least double so
that homeowners can strengthen their homes and communities or relocate to higher
- The National Flood Insurance Program should be strengthened and put
on strong financial footing. This federal program is now $20 billion in debt
to the U.S. Treasury.
- Additional information should be gathered to aid in the consideration
of longer-term solutions.
Dodd's remarks did not include any comment on the thousands of homeowners
whose claims have been rejected by insurance companies, particularly where those
claims include hurricane damage.
Senator Schumer released a congressional study about the current
problems in the subprime lending industry. The report by the
Joint Economic Committee said that foreclosures in the subprime sector are expected
to rise over the next two years as nearly 2 million hybrid adjustable rate mortgages
hit their reset dates.
Schumer said that he and others would be proposing that "hundreds of
millions of dollars" of federal funds would be directed to helping community-based
groups work with borrowers to avert foreclosures. The report also urged that
underwriting rules be strengthened on the federal level and that standards for
the education and licensing of mortgage lenders be established.
It will be interesting to see if any congressional action arises out of these
reports and hearings and, should any occur, if it will be in the form of bailing
out insurance companies and lenders or putting in place some real reforms to
insure that corporations can not longer just take the money and run.