National Association of Realtors Flood Insurance Update
Monday, January 20, 2014
National Association of Realtors
Flood Insurance Update: January 17, 2014
By Austin Perez, National Association of Realtors
On Jan. 16, 2014, Congress passed the Omnibus Appropriations Bill (H.R. 3547) to fund the federal government through Sept. 30, 2014.
The bill prohibits FEMA from implementing future premium increases on “grandfathered properties” for nine months.
It does not limit premium increases triggered by the sale of a property, which FEMA implemented Oct. 1, 2013.
(“Grandfathered” property owners are allowed to keep the lower rate from older maps when new maps are issued.)
On Jan. 27, 2014, the Senate is scheduled to vote on the Homeowner Flood Insurance Affordability Act (S. 1926) sponsored by Senators Menendez (D-NJ) and Isakson (R-GA).
The bill calls a 4-year timeout on increases both for the property buyers (including buyers of a second home or business) and the owners of grandfathered properties.
The bill also establishes a flood insurance advocate within FEMA to investigate rate increases and assist property owners with multiple or miscalculated rate quotes.
This is a make-or-break moment for the bill in its current form. It will take 60 votes to move forward.
- On Oct. 1, 2013, FEMA imposed full-risk rates on properties sold after July 2012.
- Because FEMA retroactively applied the increase, many buyers between July 2012 and Oct. 2013 were not told of the increase before purchasing the property.
- Experts have found numerous rate quote miscalculations and discrepancies calling into question the accuracy of many rate increases around the country.
- In recent Congressional testimony, NAR provided several examples where the quoted rates exceeded the true risk rate by $10,000-$30,000 per year.
- Only FEMA has access to the insurance data but missed the congressional deadline to submit an affordability report that could show whether the rate quote miscalculations are isolated incidences or part of a national pattern.
- Until FEMA investigates and finally complies with the statutory requirement to report to Congress, NAR is calling for the 4 year time out. There are too many inaccurate rate quotes to ignore.
- NAR is not objecting to full risk rates or a longer term phase in, but home buyers need a pause now while Congress works out the details and reviews FEMA’s report.
- The bill will not benefit only million dollar beach houses whose values far exceed the $250,000 coverage limit; middle class families whose homes values fall below this limit need a way to insure their property against flooding.
- 5.6 million rely on NFIP in 20,000 communities where flood insurance is required for a mortgage
- A delay does not increase overall NFIP borrowing; it does put the brakes on falling home values due to skyrocketing and potentially inaccurate flood insurance rates.