method by which it possibly could be delivered. It's just a suggestion.

Senator KERRY. Again, I think Ms. Bowker's observation is accurate. I mean some communities could handle that, and others obviously would not be able to. But it's worthy of trying to factor into our thinking to see how we might be able to facilitate that.

One last question before we shift, which we must do to the next panel because of time. But can any of you involved in the lending process, mortgage bank or otherwise, suggest how one might deal with this non-regulated entity, how you bring them under the sweep, and what is the supervisory mechanism for that?

Anybody have a-other than the fact and you've made a very telling point, Mr. Austin, and we've noted it in our approach, which is that the vast majority of non-regulated institutions are dealing with Fannie Mae and Freddie Mac.

Mr. AUSTIN. And FHA/VA.

Senator KERRY. And FHA/VA. And therefore must come into compliance under that, so you're really dealing with a far smaller percentage of people who are outside in that, quote, non-regulated area. That's a very telling point, because it doesn't leave you that much of a package.

The question is how, if you wanted to, do you deal fairly with that component that still remains outside, and what's the supervisory mechanism? Any thoughts? Maybe it's something you want to think about?

Mr. ENGELSTAD. Well, Senator, we've thought about it, and the only option we came up with, the one you've already mentioned, has its own problems as far as requiring the individual homeowner. Senator KERRY. Right. We're going to look at that a little further and see what happens on it.

Ms. BOWKER. I think, I worked in a disaster center, and your suggestion about denying disaster relief to someone who has not obtained flood insurance when they've been given sufficient notice, I think it would be tough to do in the height of a disaster, just because the records and, you know, the information isn't there.

Senator KERRY. Let me give you an example of how very simply the record could be. I mean, somebody's got to sit down at a closing when they purchase their home, and we're making this prospective. This is for all future actions. And since it's going to be escrowed, you're in a situation where, just as you sign occupancy permits and you have a host of other requirements at closing, I mean it doesn't have to be that complicated.

Now I know some people are going to say, oh, my God, you know, another form of closing. But the fact is you really could very easily have sufficient notice right then and there, and people have to become responsible or non-responsible as a homeowner. And you sign, you know, I waive my rights or I acknowledge that I'm required to have it, and so forth.

Ms. BOWKER. How does that piece of paper get to the disaster assistance center, though? That's the problem when you're in the middle of a disaster and the press is there, and you know, we saw days and days and days of what went on in the Midwest and our hearts went out to them.

If you have somebody, big brother sitting there going, well, you know, I don't think it'll fly, you know, just because it doesn't work real well when you're in the middle of a disaster.

Mr. STAMPER. Senator, if I could just come back to one question you asked earlier. On one hand, the perception that a relatively small percentage of people living in the flood zones have flood insurance, yet both Bob and I are saying that our lenders, we believe, are substantially in compliance.

It may be very consistent that 100 percent of the lenders are getting their borrowers flood insurance, yet you still have very small levels of borrowers in flood zones that are covered by flood insurance for a couple of reasons. One in almost half of homeowners don't have a mortgage. Based on our own portfolio, we'd guess that 5 to 10 percent of the mortgages were originated before 1973 and are not covered by the insurance requirements.

Then there's a whole host of technical reasons about insurance requirements, why someone might be exempted. For example, FEMA issues letters to individual borrowers exempting them. Properties that are on the boundary line are exempted. Properties that are in coastal barrier areas are exempted.

Senator KERRY. I understand that, and you're absolutely correct. It's a very important point, which is why I think where we've landed is the most sensible and appropriate place with the minimal intrusion, but the maximum capacity to expand participation.

Mr. STAMPER. But if the issue is increasing the number of homeowners in flood zones that have flood insurance, it seems like there are other areas to push on; most notably, homeowners that don't have mortgages. That seems like the biggest area.

Senator KERRY. We're exploring that, and I think it's an issue of sort of one step at a time. That's clearly an issue on the table, but it is not one that necessarily, even under the original 1973 intent of Congress, has to come under this particular step. But it's something we've got to look at.

Thank you all very much. We will take each and everyone of your comments and suggestions under advisement and work on them in the next week before the Full Committee meets.

If we could have the next panel come forward. Beth Millemann, Kathleen McCauley, Rebecca Quinn, Christophe Tulou, Pat Campbell-White, Thomas "Tommy" Thompson, and Peter Fallon.

Folks, I really need to invite and implore your super cooperation here on the time, if we can. Your full testimonies are part of the record. They will be read. They are going to be a significant part of our work, post this hearing, but I do ask you to try to keep to the 5 minutes, because I've got to wrap up around 11:30 a.m., and I want to have time for a little bit of questioning.

If we could start.

OPENING REMARKS BY SENATOR CAROL MOSELEY-BRAUN

Senator MOSELEY-BRAUN. Hi.

Senator KERRY. Senator, how are you.

Senator MOSELEY-BRAUN. Fine, thank you.

Senator KERRY. You want to make a comment?

Senator MOSELEY-BRAUN. No, I'll reserve any comments, so that I can hear the witnesses.

Senator KERRY. Thank you.

Let's go, if we can, ink the following order. We'll start with Beth Millemann.

Who are the substitutes? We've got a few substitutes here.

Mr. KEHOE. I'm Cary Kehoe, substituting for Christophe Tulou. Senator KERRY. Say that again. Cary?

Mr. KEHOE. Kehoe.

Senator KERRY. Kehoe. All right. And you're substituting for Christophe Tulou? All right.

Ms. MCCAULEY. Mr. Chairman?

Senator KERRY. Yes?

Ms. MCCAULEY. Peter Fallon of the North Beach Civic Association, Vero Beach, asked me to cover his testimony when I give mine.

Senator KERRY. All right. Then let's go.

And you are?

Ms. MCCAULEY. Kathleen McCauley from Marshfield, MA. Senator KERRY. Kathleen McCauley from the right State. OK. [Laughter.]

Senator KERRY. Let's go in this order if we can, then. We'll start with Beth Millemann and then Kathleen, after that, Rebecca Quinn, Cary Kehoe, Pat Campbell-White, Tommy Thompson, and that should-did I leave anybody out? That includes everybody. Thank you.

Oh, Tommy, you have a plane you have to catch?

Mr. THOMPSON. Yes, sir.

Senator KERRY. Why don't you lead off?

Mr. THOMPSON. OK, thank you. I appreciate that understanding. Senator MOSELEY-BRAUN. If you have to leave at 11:30 a.m., I

can wrap up.

Senator KERRY. Oh, could you? Well, that's very kind. Senator Moseley-Braun has very kindly offered to give us a little more time on the back end, after 11:30, so that gives us a little more time for questions, which I appreciate enormously. But it doesn't let you off your obligations.

[Laughter.]

Senator KERRY. All right.

STATEMENT OF THOMAS N. “TOMMY” THOMPSON, FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS, WASHINGTON, DC

Mr. THOMPSON. Mr. Chairman, Members of the committee, my name is Tommy Thompson. I'm a homebuilder from Owensboro, KY, and I'm presently serving as president-elect of the National Association of Home Builders, which is an association that represents some 165,000 firms engaged in all aspects of homebuilding and land development. I want to thank you for giving NAHB the opportunity once again to appear before you to comment on legislation to reform the National Flood Insurance Program, Senate Bill 1405, the National Flood Insurance Reform Act of 1993.

I'm a second generation Kentucky builder and president of Thompson Homes, Inc. My company builds primarily single-family homes and, as such, I'm very familiar with the day-to-day activities and workings of the National Flood Insurance Program. As homebuilders, we can play a critical role in maintaining the solvency of the NFIP through hazard mitigation efforts.

NAHB has always supported the Federal Emergency Management Agency construction standards and practices for flood mitigation. These flood mitigation standards require the lowest habitable area of a structure to be at or above the 100-year flood elevation. Through the NFIP and the flood mitigation standards, builders are afforded cost effective and technically feasible means of minimizing damage to structures caused by flooding at a price affordable to the housing consumer.

The NFIP, as it relates to construction that has occurred after development of Flood Insurance Rate Maps, or so-called post-FIRM, works relatively well. Flood Insurance Rate Maps were first issued in 1975, so that any subsequent construction conforms to the 100year flood elevation requirements.

Let me also acknowledge that homebuilders and the building community at large have a responsibility to continue developing better construction techniques for coastal development. We have learned a great deal at NAHB and use this information to educate our members. Obviously, the more we learn about building structures that can withstand severe wind and rain, the less damage that will be sustained, thereby reducing insurance claims and associated repair expenses.

I want to thank Senator Kerry and Senator D'Amato for their efforts to accommodate and balance the various interests that converge on this issue.

Senate Bill 1405 is evolving toward greater recognition of State and local governments control over their resources and land use decisions, while safeguarding the Federal Government's interest in the NFIP solvency. Unlike previous bills, S. 1405 poses no real constitutional problems under the Fifth Amendment's takings clause because it no longer contains an express prohibition on construction and development of an individual's private property.

Senate Bill 1405 also appears to recognize alternative forms of viable erosion mitigation techniques, and provides the flexibility for State and local governments to determine how they manage their coastlines.

NAHB applauds Senator Kerry and other Members of the Banking Committee for their efforts to address the financial soundness of the NFIP. NAHB supports the goals of NFIP to provide affordable flood insurance for property subject to flood hazards.

However, a Congressional research study indicates that only 1.7 million of an estimated 11 million households in flood hazard areas have flood insurance. In light of this data, NAHB concurs with the thrust of title II, which seeks to increase the participation in the fund through strengthened lender compliance provisions, as we were talking about in the previous panel.

Title II of Senate Bill 1405 also should contain provisions ensuring that maps are accurate, that appeals are expeditiously proc

essed, and that those individuals not living in flooded areas not be subject to flood insurance purchasing requirements.

I've just returned from our fall board of directors' meeting with some of the provisions of S. 1405 were debated. Specifically, NAHB opposes that part of Senate Bill 1405 which denies flood insurance through the NFIP in erosion hazard areas.

Section 406 denies coverage within a 30-year erosion zone for any new structure or additions to existing structures if that addition makes the structure not readily movable. It also prohibits flood insurance coverage in between the 30- and 60-year erosion zones for any non-residential structure, residential structure that is not readily movable or additions to existing structures which renders the structure not readily movable.

NAHB opposes this section of the bill for a variety of reasons, not the least of which is what would no doubt have a chilling impact on coastal construction. Beyond that, however, we believe the committee should be concerned about its broader impact on communities and the NFIP. First, section 406 contradicts a very public policy purpose, driving the flood insurance program and title II, which is to increase participation in the NFIP.

And, Senator, as you know, post-FIRM construction would be constructed and covered at actuarial rates, which would have no impact on the fund, I think as the GAO testified earlier. Also we're concerned because section 406, with its varying policies on the type of structure eligible for coverage, coupled with the ever-changing erosion zone designation, will be a bureaucratic nightmare to administer.

For these reasons, NAHB argues that flood insurance should be available for structures in these zones, and the policy should be equitable, consistent with the policy goals, encouraging community participation in NFIP, and at the same time, would prevent or mitigate many adverse impact to a community's existing and potential tax base. This applies especially to those communities dependent upon revenues brought in by tourism and the seashore.

Also problematic from a homebuilders and homebuyers perspective is section 604(b) which calls upon FEMA to give special emphasis to provision of erosion hazard areas where that area experiences an increase in its erosion rate due to a storm or extraordinary event.

This provision ignores real life situations faced by builders who have projects that take several years to complete. While a builder would receive a permit to start construction, intending development to occur within permissible erosion zones, the FEMA remapping before completion of a project could change the zone in which a builder was developing.

So we believe this eventuality is further argument in favor of making flood insurance available through the NFIP for all new structures. Other portions of S. 1405 require clarification.

Section 301 establishes a community rating system to encourage communities participating in the NFIP to exceed the existing floodplain and erosion management measures in exchange for lower premiums. In effect, the title codifies existing practice wherein the Federal Insurance Administration allows the local and/or State government to determine its building practices and codes, provided