The catastrophic weather in Texas has thrown the spotlight on the federal government’s troubled flood insurance program, which is nearly $25 billion in debt after huge payouts following Katrina, Sandy and other devastating hurricanes.

But as Houston starts the long process of recovering, lobbyists in Washington have already maneuvered to slow lawmakers efforts’ to overhaul the National Flood Insurance Program and protect their industries’ profits.


The powerful home builders’ lobby helped kill a proposal that would have phased out coverage for new construction in high-risk areas. The National Association of Realtors blocked an attempt to rein in discounted insurance rates that homeowners can get when their flood risk increases. And the American Bankers Association has warned of a “regional foreclosure crisis” if Congress axes coverage for homes with excessive claims.

Lawmakers who want to reel in the program are finding that they must appease the influential industry groups whose support they need to move forward.

"We want to have a vibrant construction industry," said Rep. Dennis Ross (R-Fla.), who's pushing for a greater private-sector presence in the flood insurance market. "We want to have a vibrant real estate industry. That's all great. But we're incentivizing building in high-risk areas, which is a moral hazard."

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The flood insurance program, created by the federal government in 1968, was designed to provide coverage to homeowners who couldn’t get it through the private market. But repeated disasters in recent years have buried the program in debt, and critics say the system has given developers an incentive to build in areas vulnerable to flooding — including some of those inundated by Harvey — that they might have otherwise avoided.

Craig Fugate, who led the Federal Emergency Management Agency during the Obama administration, said the easiest way to shore up the program would be to “stop writing new policies on construction that hasn’t been built.”

That’s what legislation advanced by House Financial Services Chairman Jeb Hensarling (R-Texas) earlier this summer would have done.

The bill, part of an effort to reauthorize the flood insurance program before it expires on Sept. 30, would have phased out government coverage for new construction in high-risk areas.

Hensarling is an outspoken fiscal conservative who has said he’d prefer to do away with the federal insurance entirely if it was up to him. More than any other senior lawmaker this year, he has pushed for a comprehensive overhaul.

But Hensarling backed down on the new construction limits in July after intense opposition from the National Association of Home Builders, a trade group that has already spent more than $2 million lobbying this year.

Jerry Howard, the association’s chief executive, said Hensarling “knew we had a lot of support.”

“I went into his office, sat down face to face with him, made the arguments, told him what we could live with and what we couldn’t live with and offered to compromise,” Howard said. “That’s what made the case for us.”

The builders argue that new construction is more resilient to flooding and provides a financial asset to the program rather than a drain.

Adding to the pressure over the summer, Hensarling was facing pushback from the Realtors and from House Republicans concerned about how the suite of changes to the program would affect their coastal districts.

Days before Hensarling agreed to compromise on his bill, more than two dozen GOP lawmakers sent a letter to House leadership warning that the committee’s proposals would make flood insurance unaffordable for their constituents, stall development and construction, and increase exposure to the U.S. Treasury.

The National Association of Home Builders defends its lobbying against the reforms.

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“Any policymaker that would try to tell his or her population that they can’t live near water is really in for a tough row to hoe,” Howard said.

Still, some of the association’s own members have criticized its tactics.

Ron Jones, a Colorado builder who has been on the National Association of Home Builders’ board for more than two decades, said the association did what most of its members wanted when it pulled out the stops to fight Hensarling’s proposal. But he doesn’t think it was good for the country.

“How many times do you need to rebuild in certain areas before you say it might be better to locate somewhere else?” Jones said. Most home builders “will be happy to build those houses as many times as somebody will pay for them,” he added.

Fugate, the former FEMA administrator, was more blunt.

“They won’t make money if they can’t sell crap to people” in flood zones, he said.

Not all flood insurance experts agree that the proposal was a good idea.

Larry Larson, a former executive director of the Association of State Floodplain Managers, said he wasn’t convinced that barring the flood insurance program from insuring new construction in flood zones would stop developers from building in vulnerable areas.

Preventing the owners of new houses built in flood zones from buying insurance from the federal government would also rob the program of revenue that it uses for flood mapping and other work. “I don’t think anything in [Hensarling’s] bill would have made anybody safer,” Larson said.

The home builders weren’t the only industry fighting to shape the legislation reauthorizing the insurance program.

Craig Fugate, who led the Federal Emergency Management Agency during the Obama administration, said the easiest way to shore up the program would be to “stop writing new policies on construction that hasn’t been built.” | Chip Somodevilla/Getty Images

The National Association of Realtors — the No. 2 lobbying spender in Washington last quarter — successfully fought off a proposal that would have curtailed “grandfathering.” That's when flood insurance policyholders can continue to receive lower rates even after the government determines that their risk of flooding has risen.

The group argued that the provision was unfair for homeowners whose houses had been built to code before their designated flood risk changed.

Austin Perez, a National Association of Realtors senior policy representative, said the group was willing to entertain phased-in rate increases and wanted more time so when someone built to code “you could have some confidence … your investment wouldn’t be lost the very next year.”

“It wasn’t that we wanted to keep those grandfathered forever in perpetuity in the future,” he said. “What we’re saying is you need to provide some planning horizon.”

After Hensarling agreed to drop provisions opposed by the builders and Realtors, the trade associations said they'd back his committee's legislation, which includes other changes to the program.

Rep. Earl Blumenauer (D-Ore.), who has worked on flood insurance issues for more than a decade, said he was sympathetic to the realtors’ arguments. The federal government shouldn’t saddle homeowners with flood insurance premiums they can’t afford.

But Harvey is also a rare chance for lawmakers to shore up a program whose troubles are easy to ignore when there's no hurricane in the headlines.

“It’s very hard to get policymakers to focus on the flood insurance program until we have a Katrina or we have a Rita or we have a Sandy, and then all hell breaks loose,’’ Blumenauer said.

In June, the American Bankers Association warned the Financial Services Committee of “significant hardship for homeowners, lenders and communities” if it followed through with another proposal that would eliminate coverage for properties with “excessive” lifetime claims that amounted to more than twice the replacement cost.

“As borrowers lose NFIP coverage, and especially if alternative private coverage is not available or affordable, these properties will lose value and the risk of abandonment and/or foreclosure increases dramatically,” the group wrote in a letter. “In some flood prone communities, this could lead to local or regional foreclosure crisis.”

ABA spokesman Jeff Sigmund said the group remained concerned about the proposed limits but understood the fiscal need to consider it. He said the association is working with lawmakers to address the concerns through notices and mitigation.

Ross, the Florida congressman, said it could take more than a decade to address the real degree of risk that consumers are taking on.

“We’ve allowed this for the last 50 years with the creation of the NFIP,” he said. “We’ve allowed the construction of these structures in high-risk areas. You can’t stop it overnight.”