Proposed revisions to the Federal Emergency Management Agency's (FEMA) flood maps are expected to bring about 35,000 homes and businesses on the Atlantic and Gulf coasts into FEMA-designated flood zones – and many of these property owners will be required to buy flood insurance as a result.
In fact, many of these property owners will be ‘double-whacked’ by the high cost of flood insurance, as changes to federal law enacted in July are expected to jack up premiums.
Although flood coverage is only mandated for government-backed mortgages, lenders generally require it for jumbo borrowers who live in high-hazard (FEMA Zone A) areas, according to a report on MarketWatch These are defined by FEMA as having a 26% chance of flooding during the lifespan of a 30-year mortgage.
It's well known that coastal properties tend to have higher values – thus many of these homeowners have jumbo mortgages. Both Bank of America and Wells Fargo require jumbo-mortgage borrowers to obtain the $250,000 maximum coverage available for residential properties under the National Flood Insurance Program, which is an arm of FEMA, according to the report.
Homeowners also have the option to buy what is called "excess" flood insurance from private insurers to cover repair or replacement costs above $250,000. While most homeowners don't go for this because it is expensive, an increasing number of jumbo borrowers, particularly ones in the New York-New Jersey-Connecticut area, are investigating it as an option, according to the report.
Interestingly, condo owners will also be required to buy flood insurance if they happen to be included in FEMA's revised flood zones. Many of them will pay for flood insurance in the form of increased common fees.
As reported at MortgageOrb.com last week, more than 4.2 million homes along the U.S. Atlantic and Gulf coasts would be located in storm surge risk zones, creating more than $1.1 trillion in risk, should FEMA's map revisions be approved later this year, according to real estate data analytics firm CoreLogic.