NAR and many lawmakers in Congress are pushing for a time-out in the federal government’s efforts to eliminate flood insurance subsidies over time and phase in premium rates that reflect properties’ actuarial risk of flooding. NAR’s Call for Action this week to its members is part of that effort.
But it’s not just hikes in insurance premiums that’s fueling this push by NAR and others to slow things down; it’s the sometimes wildly divergent and uncertain way insurers are assessing new premium rates. As NAR Past President Moe Veissi said in eye-opening testimony before a House subcommittee yesterday, property owners are sometimes getting half a dozen different premium quotes for their property, sometimes even from agents in the same company.
“The law has proven complicated and difficult to implement,” Veissi said in his testimony.
The former association president shared reports from NAR members across the country of some property owners seeing big increases in their flood insurance costs even though their property has never flooded and in some cases their community has never flooded or has instituted community-wide flood mitigation efforts.
The confusion in the market is having dire consequences on the ground. “We’re seeing for-sale signs today that say ‘No insurance impact on this property,’” he said. “That tells us very quickly that folks are making determinations at the point of impact on property that they would normally have bought.”
He also shared findings from a Rand study that home values are declining by $10,000 for every $500 increase in premiums.
Bottom line, there was broad acknowledgement among lawmakers and the witnesses at the hearing table that the flood insurance program must move to a premium structure that reflects the actuarial risk of flooding. But at the same time, a lot needs to be done to ensure that the needed change happens in an appropriate way. And that’s what the NAR-backed, bi-partisan legislation that’s under consideration in Congress would do.
The legislation is called the “Homeowner Flood Insurance Affordability Act,” H.R. 3370 in the House and S. 1610 in the Senate, and It would pause some program changes while the federal government gets a handle on how the new rates are to be set and it looks at the affordability impact of the new premium structure. Importantly, it would also help property owners take action if they feel their premium changes aren’t accurate.
You can get more info on the Call for Action at the REALTOR® Action Center.
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.
For years the availability of federally backed flood insurance was an on-off affair. The program was $18 billion in debt to the U.S. Treasury, largely because of Hurricanes Katrina and Rita in 2005, and Congress would only renew the program for short periods of time because it wanted to delay long-term reauthorization until top-to-bottom program reforms were included. The result was uncertainty in the marketplace to an extreme level, with no fewer than 17 last-minute program reauthorizations in just a few years and two actual shut-downs. Not a good situation in areas where flood insurance is required to get a loan and the National Flood insurance Program (NFIP) is the only insurer in town.
Congress finally enacted long-term reauthorization last year and as part of that included long-sought reforms to help improve the actuarial soundness of the program.
What these long-sought changes mean, though, is a gradual phase-out of insurance subsidies that go to a small percentage of property owners.
The phase-out of subsidies is part of the package of reforms that are intended to make the flood insurance program more financially sound. For years, a small portion of property owners have been paying far below the actuarial cost of their policies because of previous legislation. In some cases, the premium subsidies were for properties that were in areas in which outdated flood maps had been grandfathered in. In other cases, the subsidies were for properties that pre-date the drawing of their area flood maps. These are referred to as pre-FIRM properties ( with “FIRM” standing for “flood insurance rate map”).
In all, there are several classes of property that have had their flood insurance premiums subsidized over the years, and now, starting this year, their subsidies will start to phase out gradually. That means that some owners will face rising insurance premiums over the next few years.
No one can be expected to like seeing their subsidies phased out, but for supporters of reform, it was either that or not having any flood insurance available at all.
You can learn more about the phase-out in the 4-miniute video above.
REALTORS® claimed a big victory last week when President Obama signed into law the 5-year reauthorization of the National Flood Insurance Program. NAR spent years advocating on behalf of this legislation and its 1 million members, by participating in several calls for action and making passage a talking point on Hill visits for years, were instrumental in getting it finally passed.
More than just helping to get the law passed, REALTORS® were instrumental in making it a better piece of legislation.
First and foremost, the law reauthorizes federal flood insurance authority for the long-term, eliminating the constant uncertainty that flood insurance wouldn’t be available in the 21,000 communities where it’s required for obtaining a mortgage. Second, it maintains comprehensive coverage for all properties, including second homes and vacation homes. Third, it’s a revenue raiser, which will help pay down a loan from the U.S. Treasury to cover the massive Hurricane Katrina costs from 2005. Fourth, it improves the accuracy of flood plain mapping, which will continue a trend toward improved mapping so that the industry has clarity over where flood insurance is required and where it’s not. And fifth, it builds in the opportunity for further improvements to the entire flood insurance program over time, so if things aren’t working well, NAR and others will know it and have a framework for getting improvements built in.
There are many other positives to the new law, including a much improved appeals process for home owners to challenge the accuracy of the flood plain map that the federal government is using for their area.
As NAR President Moe Veissi says in a previous post on this blog, getting this reauthorization and reform program enacted into law shows that bipartisanship in the federal government still exists when the need is clear and the legislation is reasonable. It’s no surprise that it’s a program important to real estate that serves as a bipartisan vehicle for cooperation, because real estate in general and home ownership in particular are among the most bipartisan matters the federal government deals with on a regular basis.
There will be plenty of legislative and regulatory challenges for real estate in the months and years ahead, but for now, real estate shows once again it has the power to bind lawmakers together for the common good.
Get all the details about flood insurance reauthorization on REALTOR.org.
Read the new law in its entirety. Flood insurance reauthorization is Title II.
NAR President Moe Veissi told a panel of U.S. senators yesterday that the last thing the housing market needs right now is another reason for lenders to decline your client’s mortgage loan application.
“Tight lending standards remain a problem,” he told the members of the U.S. Senate Banking Committee subcommittee on economic policy, “and we don’t want to give a lender another excuse not to approve a loan.”
The Senate panel was looking at long-term reauthorization and reform of the National Flood Insurance Program. NAR supports reauthorizing federal flood insurance for five years and making reforms that would strengthen the program. As it stands, the program is set to expire at the end of this month, and REALTORS®, when they’re in Washington next week for the Rally to Protect the American Dream and the NAR Midyear Legislative Meetings & Trade Expo, will make the program reauthorization an advocacy priority. Members will be meeting with members of Congress from their state in their annual Hill visits.
Many lawmakers on a bipartisan basis support reauthorization, but extending the program is always a challenge. Congress in the past several years has reauthorized the program in short-term increments, and a couple of times it allowed the program to lapse for a short period. Those lapses, as short as they were, have been very hard on the market. Thousands of transactions couldn’t close—and that’s what President Veissi means when he talks about giving lenders another reason to say no.
And the problem isn’t a coastal issue. As President Veissi says in his testimony, which you can see in the the 3-minute video above, flood plains are everywhere, so the absence of insurance is a nationwide problem.
By Robert Freedman, senior editor, REALTOR® Magazine
Flood insurance is commonly thought of as a coastal issue but flood plains are located throughout the country and in fact, in some Midwestern states, almost 10 percent of homes are in flood plain zones.
For that reason, it’s not just a coastal issue if the National Flood Insurance Program expires at the end of September, which is when the federal fiscal year ends.
NAR has been talking with lawmakers and their staffs about renewing the program (there’s a bill that would renew it for five years and make NAR-supported reforms), because if the federal government stops issuing the insurance, purchases of homes in flood plains can’t close.
Whats the potential universe of impacted properties? NAR estimates the number at more than 1,300 a day.
Most of those are in the South, but almost half are in the other three regions: Midwest, Northeast, and West.
Selma Hepp of NAR Research talks about how she derived the number and how that 1,300-a-day figure breaks out regionally in the 3-minute video above.
By Kelly Killian, Manager of Editorial Development, REALTOR.org
NAR received the following e-mail last week from a Washington-state REALTOR®, and it served as a thoughtful and important reminder of why we — and all of you — do what we do:
I had a thought … I know for many years we had to fight to keep banks out of real estate and we, as an organization, spent a lot of money to hold them off. Given the events of the last five years, the mess with the mortgage companies and banks going out of business, I have tried to imagine if there weren’t any REALTORS® to fight that battle, how much worst this last 3-4 years could have been. I wanted to thank you for the work you do for our members and the spirit in which you do it for Americans and the fight for homeownership. I, for one, am proud to be a REALTOR® and gladly pay my dues to keep us all at work.
Indeed, working with Congress to keep banks out of the real-estate brokerage business, is just one of the very important policy accomplishments NAR and the many REALTOR® advocates and volunteers have achieved on behalf of all of our nearly 1.1 million members — and their clients.
Recently, NAR outlined some 50 key legislative and policy accomplishments in 2010 — just a portion of the work conducted on behalf of REALTORS® last year. Among the efforts that served to protect REALTORS®’ business interests, sustain residential and commercial housing opportunities, and eliminate barriers to credit were extending the closing-date requirement for the home buyer tax credit, ensuring the continued funding of the National Flood Insurance Program, and securing RESPA guidance from HUD.
And the work continues in 2011, with our efforts toward secondary-mortgage market reform, preserving the mortgage-interest deduction, and much more.
By Brian Summerfield, Online Editor, REALTOR® Magazine
In the wake of recent legislative successes, including the extension and expansion of the home buyer tax credit and the restoration of the rural housing program, more challenges remain for REALTORS®, NAR leaders said this morning at the 2010 Leadership Summit.
A few issues stand out above all the others. First and foremost, reforming government-sponsored enterprises’ involvement in the mortgage financing space is critical to getting the housing sector back on track. Discussions in Washington on how to do this are expected to begin next year. Continue reading »
By Robert Freedman, senior editor, REALTOR® Magazine
Home sales are doing pretty well right now, with sales at an annual pace of almost 5.7 million units, but the question on everyone’s minds is, what happens now that April 30 has come and gone and no more contracts will be eligible for the home buyer tax credit? (That’s the case even if the deadline for closing is extended, which Congress is looking at doing.)
Well, NAR Chief Economist Lawrence Yun thinks existing-home sales will continue doing pretty well for the next month. At a press conference yesterday (June 22), he said he expects sales to be about the same for June as in May. (See the video.)
But come July, sales could drop, because the stimulus effect of the tax credit will be gone and all that will be left to support sales is the economy and households’ confidence in buying. On the plus side, interest rates are expected to stay historically low and prices remain low, with lots of bargains to be had. But the big question continues to be job creation. If we see it, housing will follow. If we don’t, housing could lose the momentum it’s seeing.
Jobs, of course, is something no one can control. Even in a growing economy it’s not a given that businesses will start hiring. As Yun has said on a number of occasions, even if sales are picking up, businesses are unlikely to hire until they feel the pick-up is something that will be sustained over time. That’s because hiring represents an investment not in the present but in the future. Without that expectation of future growth, a strong performance today isn’t enough to justify the expense of hiring.