It's never too late to fight against legislation, even if the law was passed more than a year ago.
The Biggert-Waters Flood Insurance Reform Act of 2012, which the U.S. Congress passed, and President Barack Obama signed into law in July of last year, extends the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA), for five more years. The law also makes changes to the program to make it financially more stable. These reforms include an increase in insurance premiums – a change that is not welcomed by realtors, mortgage bankers and some homeowners.
The law, which FEMA refers to as BW 12, has been taking effect in phases. Its most recent implementation was Oct. 1 of this year, when certain subsidies and discounts began to be phased out. Insurance premiums will increase for business owners with subsidized premiums, owners of severe repetitive loss properties and owners of properties that had incurred flood-related damages in which the claims paid had exceeded the fair market value of the property. According to the FEMA website, the premiums will increase 25% each year until the rates reflect the full risk rates.
While it might be too soon to tell what effect the law will have on the mortgage industry, real estate salespeople say the changes have brought on panic among homeowners – and potential homebuyers – in flood-risk areas.
‘I was hearing horror stories,’ says John Sebree, senior vice president of public policy for the trade association Florida Realtors. ‘People would say, 'I am hearing from my insurance agent that my policy will go to $5,000, and I am paying $500 now.'’
The Orlando-based Florida Realtors set up a Flood Insurance Toolkit on its website. Realtors can answer a questionnaire about their clients' premiums, the property's location in flood zones and the justification for the increases. Sebree says the information helps him when he speaks to legislators. ‘We needed real-life examples because the anecdotes just didn't do it,’ he says.
FEMA is also updating its flood hazard maps. When the new maps, which are also being completed in phases, are issued, home and business owners' flood insurance rates might change. Mortgage professionals say the changes will be harmful.
‘The individuals most hurt by flood insurance changes will be consumers,’ says Valerie Saunders, president of the Florida Association of Mortgage Professionals (FAMP), based in Tallahassee, Fla. ‘With increased costs, those consumers who wish to purchase property located in a flood zone that requires flood insurance will need to look at homes with lower sales prices due to the effect that it will have on their total monthly payment when those fees are escrowed.’
Saunders adds that some borrowers will no longer be able to afford their current homes and may fall into foreclosure as a result.
For its part, FAMP has contacted the office of U.S. Representative Maxine Waters (D-Calif.), a co-sponsor of BW 12. ‘We are encouraging all of our members to contact their legislators and ask them to support H.R. 2199, which seeks to delay the force and effect of the act for three years after the date of the enactment of the act,’ Saunders says. ‘In addition, we are reaching out to Senators [Bill] Nelson and [Marco] Rubio and requesting them to sponsor a Senate companion bill for H.R. 2199.’
H.R. 2199, the Flood Insurance Implementation Reform Act of 2013, seeks to delay implementation of certain provisions of BW 12. The bill was sent to committee in May of this year. (During the federal government shutdown in early October, the bill tracking websites were not updated.)
Meanwhile, the Mississippi Insurance Department filed a lawsuit in September in Federal District Court. In a press release, Commissioner Mike Chaney said the lawsuit is an effort to stop ‘draconian rate increases’ that ‘threaten to bankrupt many Mississippi homeowners.’ He acknowledges that the NFIP is in debt, but maintains that the burden should not be placed on homeowners who ‘simply followed the rules.’
Then, on Oct. 10, Florida Gov. Rick Scott and Attorney General Pam Bondi announced they would file an amicus brief in Mississippi's lawsuit.
One group that supports reform of the NFIP is Washington, D.C.-based SmarterSafer.org. The group is calling for environmentally responsible, fiscally sound approaches to natural catastrophes. That includes paying risk-based, actuarial prices for insurance to make sure that the most at-risk property owners bear the costs of floods.
In September, the group announced it was calling on Congress not to delay the reforms. The group noted that the federal government should stop having taxpayers subsidize wealthy homeowners, as many of the properties with subsidized rates are in areas of high home prices. Indeed, the subsidies for non-primary residences, or vacation homes, did begin a phaseout in January of this year.
The Senate Banking Committee's Subcommittee on Economic Policy held a hearing about the flood insurance reforms on Oct. 1. Senators questioned FEMA's administrator, Craig Fugate, about the unfinished affordability study that was supposed to be completed this year. Although Fugate acknowledged that the study did not meet its deadline, he also maintained that FEMA did not have the authority to delay implementation of BW 12.
Nora Caley is a Denver-based freelance writer.