As the Oct. 1 deadline for implementation of flood insurance reforms approached, bringing the sudden implementation of flood insurance premiums to some property owners who didn't realize they were in flood plains and huge increases to others, who were under water in more ways than one, Democratic senators expressed consternation reminiscent of the frustration of Republicans who have railed and wailed over Obamacare: How could the administration move with such zeal to impose such a defective, half-baked program?

For readers interested in the views of outside experts, the third panel of the hearing by the Senate Banking Committee's Subcommittee on Economic Policy held on Sept. 18 and chaired by Sen. Jeff Merkley, D-Ore., promised to provide it. The witnesses were Alicia Cackley, director of financial markets and community investment at the Government Accountability Office (GAO); Christine Shirley, National Flood Insurance Program (NFIP) coordinator at the Oregon Dept. of Land Conservation and Development; Stephen Ellis, vice president of Taxpayers for Common Sense; and Birny Birnbaum, executive director for the Center for Economic Justice.

These witnesses represented, in turn, a relatively objective expert from the GAO; the obligatory witness from the Chairman's home state; a conservative with an important message about the scope of what conservatives call waste, fraud and abuse under this program; and a liberal who documented the abuses that exist and persist in the business known as forced-placed insurance.

Cackley noted that the NFIP provides two types of flood insurance — subsidized and full-risk, with subsidized premiums covering only 40 to 45 percent of the risk. In 2006, the GAO placed the program on its high-risk list "because of concerns about its long-term solvency and related operational issues."

The GAO reiterated previous recommendations to the Federal Emergency Management Agency (FEMA) that it "focus on the need to address management and operational challenges, ensure that methods and data used to set NFIP rates accurately reflect the risk of losses from flooding and that oversight of NFIP and insurance companies responsible for selling and servicing flood policies is strengthened." The GAO credited FEMA with taking steps to address these recommendations.

Shirley presented a report on the outreach, affordability and mitigation concerns of the Oregon agency. While Shirley found FEMA's flood plain maps reasonably accurate, she stressed the need to provide funding to FEMA to improve the accuracy of the maps.

She complained that in the year since the reforms of the NFIP were enacted, the difficulty in communicating the need for insurance to property owners who have never experienced flooding has been compounded by "woefully inadequate" training of agents; the inability of property owners who are not covered by flood insurance to obtain needed information; the lack of communication with key professionals, such as surveyors and real estate agents; insufficient provision of information to local officials; and insufficient provision of information to enable property owners to make informed decisions.

Further, Shirley blamed the Act itself for failing to address issues of affordability and mitigation, and she charged that "These deficiencies will cause Oregon to be less resilient to flooding than before the Reform Act was passed." She warned that the state will not achieve improved resilience to flooding without more programs to make the insurance affordable for low- and moderate-income families and more attention to mitigation of risk by refunding five years of premiums to property owners who complete partial-risk-mitigation projects, such as moving utilities out of basements and filling below-grade crawl spaces.

Finally, Shirley urged that buyers of properties during the period between the enactment of the Reform Act and the effective date of the reforms be allowed to keep the subsidized rates until they actually suffer a loss.

Ellis pointed out that the original purpose of the NFIP was to reduce the cost to taxpayers of ad hoc disaster bailouts by establishing a program to require property owners to share the cost by purchasing flood insurance. Still, 45 years after the program was established, it takes in only $3.6 billion in annual premiums but owes the Treasury $25 billion on the 4 percent of homes that are covered by the program. He found that the reason for this shortfall is that subsidies that were supposed to be limited and short term have expanded and remained in place through the years.

Worse still, properties that have experienced repetitive losses, which represent 1 percent of the number of properties, have accounted for 25 to 30 percent of claims costs, including a property in Mississippi that has flooded 34 times and cost 10 times the property's $74,000 cost and one in Houston that has paid out $1.6 million on a property worth $116,000.

In Ellis's view, further reform is needed in order to prevent cross-subsidies that impose costs on some property owners to enable other property owners to retain subsidized rates and to end the subsidization of wealthy vacation homeowners. He strongly opposed any further delay in reforms enacted a year ago, because such a delay "would put this program on perilous footing, fiscally, politically and existentially.

Birnbaum presented a thorough discussion of the egregious abuses I alluded to in the first article when mortgage servicers determine that a property owner who is in a flood plain has not voluntarily, so to speak, purchased the required flood insurance, and now, subject to increased penalties under the Act, buys the insurance and charges the property owner. Just about every abuse one can imagine has been found by Birnbaum to prevail in this industry, including domination by only two firms, conflicts of interest in the purchase of insurance through affiliates, kickbacks to affiliated parties and, using Florida as an example, significantly lower payouts compared with those of mainstream insurance.

The remedies Birnbaum suggested, such as calling on the regulator of the housing government-sponsored enterprises (GSEs) to take over administration of forced-placed flood insurance, look like band-aids to me and may entail problems of their own given the checkered record of Fannie Mae and Freddie Mac.

Birnbaum himself has documented questionable behavior by the GSEs and their regulators in determining how to track compliance and place the insurance as required.

An obvious question is where the highly touted state insurance regulators are while all this is going on, the same regulators who along with the former Office of Thrift Supervision bungled the failure of AIG, leading to a bailout that was expensive for taxpayers but rewarding for many of the managers and gamblers, most of whom were bought out of their losing positions.

As with all insolvent federal housing programs, one is left with the question of who is supposed to pay for the American Dream of home ownership. The most practical way to answer this might be to ask the richest man in the world, the social Democrat Warren Buffett, who has made much of his fortune in the insurance industry, how to balance the social demands with appropriate attention to the larger public interest. A good place to start would be to ask Buffett on what terms he and his fellow social Democrat oligarchs might take over programs like NFIP and the Federal Housing Administration that have supported the Housing-Insurance Industrial Complex while chronically losing money for taxpayers.