A sigh of relief
For over a year, everyone who owns coastal property or riverfront property in the country has been holding his/her breath. Well now they can exhale. In fact I think I actually might have heard a collective sigh on March 13 when the U.S Senate passed a bill that reverses the major provisions of the 2012 Biggert-Watters Flood Insurance Reform Act. The bill previously passed the House on March 4 and was signed into law by the president on March 21.
Some of the components of the bill are: eliminating a provision of the law that said government subsidized rates disappear when a person sells a primary home; providing a refund for those who purchased after the changes were enacted in July 2012 and were already hit under that provision; and maintaining protections due to sunset for grandfathered properties built to code after a community adopted its first flood insurance rate map.
The new legislation, when finally enacted, will still allow FEMA to impose premium increases on homes built before those maps but the increases will range between 5 and 15 percent on average with a cap of 18 percent per year until reaching actuarial risk.
Second homes that are grandfathered and commercial properties also are getting good news, but older homes built before the flood insurance rate maps were developed are not covered and could face increases which could lead to another outcry. In addition, second homes which have flooded repeatedly would continue to see premiums go up by 25 percent a year until reaching a level consistent with their real risk of flooding. Also, FEMA must strive to keep flood insurance policies under 1 percent of a property’s total coverage and report when it is unable to do so.
The most important benefit of this bill is that it reverses the biggest problem created by Biggert-Waters, which removed premium subsidies when a primary residence is sold. Some new buyers were shocked to discover they owed thousands more in flood insurance premiums than they expected, causing upset in the real estate market and resulting in many failed transactions.
Reversing the Biggert-Waters bill still leaves FEMA with billions of dollars in debt, and one of the provisions of the bill does allow an annual surcharge of $25 for primary residences and $250 for secondary residences and businesses as one step toward reducing the debt. As expected, many representatives were not happy with the fix to the 2012 law since it does very little to actually change FEMA’s on-going exposure, pointing out that 70 percent of homeowners who will benefit from changes to the original legislation were in the top 20 percent of income.
Florida has more subsidized flood insurance policies than anywhere else in the country, not to mention all of the second homes in the state. Naturally we have a huge interest in what happens with the National Flood Insurance Program (NFIP) going forward. For the moment, even though most of us will be paying higher premiums, they will at least be more manageable and allow for properties to be sold with somewhat more confidence.
There will undoubtedly be further changes to the NFIP but at least everyone seems to recognize that it can’t all be undone as drastically as originally thought.
As Sen. Jeff Merkley, D-Ore. said, “Something is terribly wrong when families are more concerned about raging flood insurance premiums than raging floods.”
I think that says it all.