Flood Subsidies Phasing Out Unless Congress Acts, FEMA Chief Says

UPDATE: Read NAR’s Oct. 10 letter to Craig Fugate outlining steps his agency could take to mitigate the sting of rising flood insurance premiums.

Any chance of the federal government delaying the phase-out of flood insurance subsidies coming down the pike rests entirely with Congress, because the Federal Emergency Management Agency (FEMA), which administers federal flood insurance, doesn’t have the authority to take action on the phase-out on its own, the agency’s head told lawmakers yesterday.

“Without some additional legislative support, I am bound and boxed in,” FEMA chief Craig Fugate said at a Senate Banking subcommittee hearing yesterday.




The subsidy phase out was enacted into law last year as part of major flood insurance reform legislation called the “Biggert-Waters Flood Insurance Reform Act,” which helped bring much-needed stability to the program by reauthorizing flood insurance for five years. But the law also instituted reforms to make the program more financially sound, and it’s part of that financial restructuring that Congress included the phase-out of insurance premium subsidies for a small portion of homes and businesses. As a result of the phase-out, some owners will see their share of flood insurance premiums go up starting next month, which is the start of the next federal fiscal year.

Although the number of impacted property owners is not large, for some of these owners, the increase could be significant, especially for those whose property is in a flood-prone area or an area that previously has not been designated a flood area but is now under new or newly updated flood-plain maps.

To slow down the pace of the subsidy phase-out, in part so FEMA can make sure it has the most accurate picture of flood risk in various areas, lawmakers, with NAR’s support, have introduced legislation in both the House and the Senate. The legislation has passed the House but not the Senate, and with the new fiscal year just around the corner, time is short for Congress to act.

Sen. Mary Landrieu (D-La.), who led the effort earlier this year in the Senate to get the phase-out delayed, testified at yesterday’s hearing that, separate from the burden on owners, the higher costs of flood insurance will make some homes hard if not impossible to sell. “Many of our folks are saying they can’t put their homes for sale,” she said. “They have no value.”

The other senator from Louisiana, David Vitter (R), asked FEMA to work with lawmakers by providing its own proposals for addressing the affordability issue that is poised to arise from the phase-out. “When will FEMA make any specific . . . proposals to address affordability?” he asked at the hearing.

Some lawmakers are looking to upcoming legislation to provide short-term funding for the federal government as a vehicle for getting the delay enacted. There will be clarity on whether that will happen or not in the weeks ahead.

In the meantime, NAR recommends agents, if they’re working with buyers or sellers of property in a flood area or an area that might be in a flood zone to let clients know that insurance subsidies could be phasing out, thereby increasing the costs to owners for flood insurance. NAR has developed model language agents can use to make that disclosure. Access that template and read about NAR’s recommendations.

In all, there are several categories of property facing a phase-out of premium subsidies, although not all of them would be included in any delay under the legislation pending in Congress. For some second homes and other properties, the phase-out will continue even if the legislation passes.

More on the phase-out.

More on all flood insurance issues.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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  1. My area of emphasis, Nashville, recently had historic levels of flooding, and this is increasingly becoming a point of concern locally. 🙁

  2. Sandy Ewing Jr

    Pinellas County Florida, where I am a native of, is going to be impacted the most by this legislation. If the B & W ACT is allowed to go thru we will most likely have a sharp rise in foreclosures and vacant homes. Sales have already dropped off sharply pending legislation. Even if the ACT is postponed for a year, sales of these homes will be virtually impossible to sell. I just do not understand where our politicians have their heads. Lets stop sending money over seas. Who can afford a $500.00 to over $1,500.00 a month increase in their mortgage payments.
    The banks are going to be stuck with these properties that no one will want.
    What’s that going to cost the tax payers? Thank you politicians for putting another wrench in our recovery.

  3. rondal

    The Question is who should pay for subsidized insurance, FEMA rate are still below market rates Can some help me with my insurance, we live in earthquake prone area ?

  4. rondal

    If FEMA is charging to much Iam sure lower cost commercial policies will become available.