Tuesday, November 26, 2013
Hi....I'm from the government and I'm here to help
This really has me worked up: Yesterday my friend Joan Perry posted on Facebook how National Flood Insurance Program reform is causing flood insurance rates to go through the roof in her hometown of Charleston, SC, and probably many other places, too. I mean rates so high people can't sell their homes and many may actually lose them to the banks.
Briefly, homeowners insurance does NOT cover loss due to flooding. For that the federal government set up an insurance program available at subsidized rates for those living in coastal areas or other low-lying places. But after hurricanes Katrina and Sandy the insurance fund is flat busted broke. Congress passed reforms for the program that were meant to build up reserves again, but as usual, they've just f__ked things up royally.
A newspaper article reported one couple who had planned to sell their home for $349K and downsize, using the surplus to fund their retirement. But then they found that their flood insurance premium has gone up 1,367% to $22,000 a year. One quote was $38,000! Now their home is worth exactly $0 as no one in their right mind will buy it. One of Joan's commentors said her premium went from $1,200 to $8,000. Joan's premium on her modest home more than doubled.
If the government wants to eliminate the subsidies, that's one thing. You do it in increments over a few years time, NOT all in one massive blow. How many people can afford to have their house payment (principle, interest, taxes, and insurance) go up $2,000 a month?
Lenders understandably require flood insurance to protect their collateral, but if the owners can't afford it, and if they can't sell, do they just let their homes go back to the bank?
This is what happens when the government tries to directly run an insurance program. Do they invest their excess premium income in times of low losses to build up their reserves like real insurance companies do? Do they buy re-insurance (to spread the risk) like real insurance companies do? I doubt they have that much business sense.
Congress....where do we get these morons? And "the people" get screwed again.