Homeowner Flood Insurance Affordability Act of 2013
On Oct. 29, 2013, Senators Robert Menendez (D-NJ) and Johnny Isakson (R-GA), and Representatives Michael Grimm (R-NY) and Maxine Waters (D-CA), introduced the NAR-supported “Homeowner Flood Insurance Affordability Act” (S. 1610/H.R 3370). While continuing to support the intent of the Biggert-Waters law, NAR is calling for a 4-year “time out” on further implementation until FEMA reports to Congress and follows all parts of the law as required by Congress. The Senate passed the measure on Jan. 30, 2014. On March 4, 2014, the House voted 306-91 to approve the Homeowner Flood Insurance Affordability Act (H.R. 3370) with amendments. The Senate must now pass the amended version before the bill can become law.
By reauthorizing the National Flood Insurance Program, the Biggert-Waters law was supposed to end the uncertainty that was costing 40,000 home sales per month. However, the Federal Emergency Management Agency (FEMA) which administers the program, failed to implement the rate changes as intended and again property owners face the prospect of foreclosure in more than 20,000 communities where flood insurance is required for a mortgage. For example, FEMA
- FAILED to predict rate increases of this magnitude; during the debate, FEMA estimates ranged from several hundreds to thousands of dollars, not the tens of thousands that Realtors® are reporting.
- FAILED to warn home buyers of the rate shocks before purchasing their property, leaving it to the real estate agents to explain the lack of disclosure to former clients.
- FAILED to train or hold accountable insurance agents who are issuing MANY rate quotes that can differ by tens of thousands, when there is only ONE actuarial rate per property.
- FAILED to explain or provide property owners with a single point of contact to answer questions about the insurance mis-rating errors and discrepancies.
- FAILED to implement many parts of the law that could help (such as installment payments) while rushing forward with others that have shocked and awed.
- FAILED to report to Congress on the affordability of these or other poor implementation decisions.
The Homeowner Flood Insurance Affordability Act would address these unintended consequences. The substitute bill to be considered differs significantly from the version that the Senate passed on Jan. 30:
- REPEALS (the Senate bill only delayed) the property-sales provision in the Biggert Waters law (sec. 205) that has triggered the most excessive and inaccurate premium increases over the past year.
- REFUNDS (the Senate bill would not refund) excessive premiums to those who have already seen an increase but were not warned by FEMA prior to purchasing the property. (This would apply to ALL purchases of property including purchases of a second home or commercial property).
- RESTORES (the Senate bill only delayed) the grandfathering of lower rates when new flood maps are issued by repealing Section 207 of the law before any increases can be implemented.
On July 6, 2012, the President signed into law the Surface Transportation Bill (H.R. 4348), which re-authorizes the National Flood Insurance Program (NFIP) through 2017.
The NFIP had been operating under stopgap extensions (18 since 2008) and shut down twice for several weeks. Just one of these lapses, in June 2010, stalled more than 40,000 homes sales or 1,300 homes per day. This reauthorization brings long-needed certainty to real estate transactions in the 21,000 communities nationwide where flood insurance is required for a mortgage.
This is a major victory for the 5.6 million home and business owners who rely on the NFIP, taxpayers across the country who will spend less on federal disaster assistance, and NAR members whose years of hard work helped make the difference.
In addition to the 5-year program reauthorization, the bill includes many program reforms which:
- Ensure the NFIP’s survival so that homeowners will NOT have to take their chances in a virtually non-existent private market for flood insurance;
- Bring certainty to half-a-million real estate transactions in 21,000 communities nationwide where flood insurance is required for a federally related mortgage;
- Maintain comprehensive coverage and program access for all properties, including second and vacation homes;
- Establish a formula for NFIP and wind insurers to pay where property damage cannot be attributed to wind or water, settling a long-standing dispute and avoiding further lawsuits;
- Eliminate subsidized insurance rates on properties with repeated flood losses and claims;
- Raise $3 billion in revenue to help pay down the outstanding Treasury loan for the 2005 storm season, which shattered all records for hurricanes;
- Improve the accuracy of floodplain maps by establishing a technical council of experts to review and set the standards;
- Establish an independent appeals board for homeowners and communities to resolve their flood map disputes with FEMA;
- Reimburse homeowner’s appeal expenses when successfully challenging a flood map;
- Require the lender to terminate the flood insurance it “force places” and issue refunds to homeowners who already have their own coverage;
- Study expanding NFIP coverage to include living and business-interruption expenses; and
- Study the availability and affordability of property insurance for natural disasters other than floods, which could help justify a role for the federal government.
NAR eliminated provisions, contained in the original legislation, which sought to end the NFIP. There are no provisions to expand the flood insurance purchase requirement to properties located behind a dam or levee (so called “residual risk” provisions). While some provisions to eliminate rate subsidies do remain, a phase-out provision was added so that any rate increase would be gradual over a period of years. NFIP coverage and access are maintained.
The bill also requires a study on affordability and implementation, enabling NAR to revisit these provisions down the road if necessary. These provisions were necessary to save a program that is $18 billion debt and secure passage of the 5-year extension to avoid further disruption of real estate markets across the U.S.
This is based on the House Financial Services Committee’s Section-by-Section Summary of Div. F, Title II of the Transportation Bill (H.R. 4348); the full text of the law is available at Thomas.loc.gov.
NAR has produced a downloadable version of the above legislative summary for distribution. A second version of the legislative summary provides a section-by-section analysis of the Act, which you can view by searching Thomas for H.R. 4348 and going to Division F, Title II Flood Insurance.
Also, view a chart compiled by The Association of State Floodplain Managers, which shows the impact of Section 205 Pre-FIRM Subsidies contained in the Biggert-Waters law.