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The House Financial Services Committee has cleared legislation that would phase out subsidized flood insurance rates for second homes and vacation properties.

The measure to reform the National Flood Insurance Program is still a long way from the President's desk. But the bill shows how lawmakers are thinking -- or, as some would say, not thinking.

Similar to the measure that passed the full House last year but failed in the Senate, it also would allow the Federal Emergency Management Agency to increase rates by up to 15 percent annually, as opposed to the current 10 percent cap, and included coverage for living expenses, business interruption and basement improvements.

Under the bill, which passed on a 38-29 vote, subsidies for non-primary residences would be phased out beginning in 2011. At that time, flood coverage rates for these properties would be increased up to 25 percent a year until owners are paying full actuarial rates. Rental units serving as primary residences would not be subject to the phase-out.

(Subsidized rates for non-residential properties also would phased out beginning in 2011, but increases would be limited to up to 20 percent a year until the full actuarial rate is reached.)

To appease those opposed to this provision, the panel added an amendment that calls for a study of the impact of charging actuarially sound rates for vacation and second homes. The study is to be completed a year after the bill is signed into law.

The National Association of RealtorsĀ®, one of several housing groups that is against making second and vacation home owners pay full boat, insisted on the study.

"We really don't know what the impact will be," said Mark Washko, NAR's senior environmental policy representative. "But by requiring it be done within one year of enactment, there will still be plenty of time to make a change before the phase-out begins."

The last study on the impact of higher rates on home owners was done in 1999.

An even more controversial aspect of the measure calls for optional coverage to cover damage caused by wind. Although coverage would be made available at the full, unsubsidized actuarial rate, nearly all witnesses at a hearing on the bill opposed the provision, saying it would increase exposure to losses of a program that already is nearly $18 billion in debt.

The addition of the wind coverage, in addition to coverage for water damage, split the committee along party lines. Rep. Gene Taylor, D-Miss., who lost his home in Hurricane Katrina, said this provision would help residents who live in coastal areas. But many Republicans complained that the insurance fund already is essentially bankrupt.

A homeowner or business would have to sign up for flood coverage to order to obtain wind coverage.

The divisiveness of the wind amendment can be seen by comparing the committee's vote to last year's House vote. The lower chamber approved its bill, 416-4, in 2006.

The bill also increases the fines on lenders that do not enforce the mandatory purchases of flood insurance by borrowers whose properties are in flood-prone areas, requires FEMA to map the 500-year flood plain as part of its on-going efforts to update its maps of the 100-year flood plain, and increase coverage limits.

The limits would go from $250,000 to $335,000 for residential properties, $100,000 to $135,000 for contents and $500,000 to $670,000 for non-residential properties.

In addition, the measure encourages property managers to notify tenants of the availability of contents insurance, and extends funding through 2011 for the pilot mitigation program to reduce the number of repetitive loss properties.

The bill will come before the full House after the summer recess, possibly in September but more likely in October. The Senate Committee of Banking, Housing and Urban Affairs is developing its own version of reform legislation.

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