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NAR Issue Brief: Homeowner Flood Insurance Affordability Act

NAR supported the Biggert-Waters Act but is now supporting a delay?

  • NAR continues to support the intent but the law has not been implemented as intended.
  • Biggert-Waters was supposed to end the uncertainty that had cost 40,000 home sales a month.
  • Yet, property owners across the nation are again facing foreclosure in the 20,000 communities where flood insurance is required for a mortgage.
  • The Federal Emergency Management Agency (FEMA) which administers the law:
    • FAILED to predict rate increases of this magnitude; during the debate, FEMA estimates ranged from several hundreds to thousands, not the tens of thousands we’re seeing.
    • FAILED to warn home buyers of rate shocks before purchasing their property; now, real estate agents are being forced to explain to former clients the lack of FEMA disclosures.
    • 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 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 implementation decisions. 
  • For these reasons, NAR supports the Homeowner Flood Insurance Affordability Act to delay further implementation until FEMA follows and reports to Congress as required by the law.

Won’t delaying Biggert-Waters Act drive the NFIP back into debt?

  • NAR agrees that flood insurance rates should be actuarially sound. 
  • However, rushing unintentional rate shocks could cause another foreclosure crisis.
  • Due to insurance mistakes, property owners are being asked to pay more than their fair share.
  • If flood insurance becomes unaffordable and owners foreclose, FEMA would not be able to pay back the debt anyway.
  • Under the Homeowner Flood Insurance Affordability Act, it may take FEMA a few more years to pay the Treasury loan for Hurricanes like Katrina and Sandy, but taxpayers will continue to be compensated with interest.
  • In the meantime NFIP will continue to reduce the amount that taxpayers will have to spend on emergency disaster relief for underinsured properties after major floods.

The bill would simply delay but shouldn’t we fix the rates instead?

  • The rate increases took effect October 1, 2013, and every day we wait, compounds the impact.
  • NAR is working with Congress and FEMA on longer term solutions but we cannot afford to wait on the bipartisan, bicameral consensus.
  • Congress cannot address the problem until FEMA investigates and reports back on the cause(s).
  • The Homeowner Flood Insurance Affordability Act provides FEMA with additional resources to create an office of the Advocate to investigate the causes and respond to consumer questions.
  • The Act will delay the costliest increases until FEMA can investigate and report to Congress with affordability solutions.

Will the bill exclude second homes and commercial properties from the delay?

  • No.  The bill would delay the increase for purchase of ALL properties, including second homes and commercial properties.   ALL properties will be able to keep the grandfathered rate.
  • ALL buyers of any property will not see the rate increase for 4 years until FEMA reports to Congress with affordability solutions.
  • The existing owners of those properties will continue to see their rates capped at 25% per year.