My name is Barbara Connery. I am a REALTOR^(r) from North Carolina and a Director of the North Carolina Association of REALTORSÒ .

The deterioration in the availability and affordability of homeowners’ insurance in disaster-prone areas is an issue of very real concern to NAR. Our members specialize primarily in the business of assisting sellers and buyers in residential sales transactions. It is this business focus that motivates NAR’s interest in the resolution of this problem.

Although I am testifying today on behalf of the real estate industry, I cannot emphasize enough that the ultimate victim of the homeowners’ insurance crisis is the consumer who is frustrated in his or her attempt to realize the American Dream of homeownership. And when a young family is precluded from owning a home because homeowners’ insurance is too difficult to obtain or too costly to afford, we all suffer the consequences.

Last year, NAR testified before this Committee on the difficulties faced by current and prospective homeowners. One year later, the situation has unfortunately not improved. In a number of states throughout the country, including my home state of North Carolina, consumers are burdened by rate increases as well as by reductions in coverage such as higher deductibles.

Since homeowners’ insurance is difficult to obtain in North Carolina, many homeowners obtain coverage from our state pool, the North Carolina Insurance Underwriting Association. Although such coverage is expensive and limited, it is often the only alternative.

The inability to obtain affordable homeowners’ insurance is a serious threat to the residential real estate market. Not only does it imperil the market for single family detached homes, but the condominium, co-op and rental markets are affected as well. New home purchases, resale transactions and housing affordability are negatively impacted in the following ways:

• Homeowners’ insurance is a necessary component in securing a mortgage and buying or selling a home. If a potential homebuyer is ultimately unable to obtain the required insurance, because the insurance is either unavailable or unaffordable, the sale will not be completed. As a result, creditworthy potential homebuyers are priced out of the market. In a recent NAR survey, respondents reported that an estimated 2,450 transactions fell through because of difficulties in obtaining disaster insurance. Seventy-five percent of respondents cited unaffordability as the reason.

• Homeowners’ insurance is tied directly to the cost of owning a home. If a homeowner is unable to maintain insurance required by a mortgage lender, the mortgage is in default. If disaster insurance coverage is optional, potential buyers may choose not to purchase a home simply because the insurance they consider essential is too expensive. Others may choose to go unprotected.

• Insurance costs impact rent levels. Insurance costs incurred by landlords are ultimately passed on to tenants. Consequently, increased insurance costs result in higher rents.

NAR supports H.R. 21 for the following reasons:

• It protects against mega-catastrophes. State programs that have been created to address the problem are well-intentioned first steps, and homeowners’ insurance is currently available in these states. However, neither state disaster programs nor the private insurance industry have the capacity to cover the risk presented by mega-catastrophes far more damaging than Hurricane Andrew or the Northridge earthquake. The creation of a federal disaster reinsurance program today will help to prevent future interruptions in the availability of homeowners’ insurance.

• It promotes fiscal responsibility. By establishing a program which promotes insurance coverage for those at risk of property losses from a natural disaster, H.R. 21 will minimize future unforeseen disaster assistance expenditures. It is time to begin planning for disasters we all know will occur and to put the responsibility for shouldering the cost of disaster preparedness and response on those who are at risk.

A strong housing market is a linchpin of a healthy economy, generating jobs, wages, tax revenues and a demand for goods and services. In order to maintain a strong economic climate, we must safeguard the vitality of residential real estate.

But more importantly, we must safeguard the cornerstone of the American Dream. NAR supports a federal response to the disaster insurance crisis which helps to make the dream of homeownership a reality for more and more Americans. We urge the Committee to take action this year on this very important issue.