Pleasanton Weekly

Real Estate - December 6, 2013

Flood insurance changes giving homeowners headaches

Impacting home sales, construction, remodeling across U.S.

by Jeb Bing

The National Association of Home Builders called on Congress this week to take steps to resolve unintended consequences of the Biggert-Waters Flood Insurance Act that are resulting in huge premium spikes for many home owners and impacting the sale, construction and remodeling of homes across the nation.

Testifying before the House Financial Services Subcommittee on Insurance and Housing, Barry Rutenberg, immediate past chairman of NAHB and a home builder from Gainesville, Fla., said a key concern of the law is that it requires properties that had subsidized rates under the National Flood Insurance Program (NFIP) to immediately move to the full actuarial risk rate when they are sold or transferred.

"Prospective home buyers fear the higher rates will make their mortgages unaffordable, especially in today's already tight credit conditions," said Rutenberg. "We have heard of cases throughout the country where pending sales were canceled at the last minute because of this sharp rate increase."

Rutenberg added that this not only harms home sales, but also impedes the move-up buyer, who will not be able to sell their current home and move into a newly constructed one.

"Requiring full-risk rates to be paid upon sale or transfer for historically subsidized and previously grandfathered properties will lead to lower property values and hurt many local housing markets at a time when the U.S. housing recovery remains fragile and uneven," he said.

To resolve some of the costly problems and unanticipated issues resulting from the implementation of the Biggert-Waters Flood Insurance Act, the NAHB is recommending that Congress take the following steps:

* Delay all rate increases until the Federal Emergency Management Agency completes its affordability study, which is required under the Biggert-Waters Flood Insurance Act and was due to be completed last April. After completion of the study, FEMA will have a better understanding of how rate increases will affect policyholders and be better equipped to provide Congress suggestions on how the NFIP can address affordability issues, said Rutenberg.

* Require FEMA to take into account all flood control structures when mapping. Further, NAHB urges Congress to ensure that FEMA allows for sufficient time and independent vetting of new maps and prohibits rate increases based on incomplete or inaccurate maps.

* Reinstate the higher "substantial improvement" threshold. This refers to the value of remodeling and renovation projects that cause the insurance premium rate increases to kick in. The threshold was lowered from 50 percent to 30 percent when the law went into effect. NAHB estimates this lower limit will place up to $8.5 billion in annual remodeling economic activity at risk, as even the simplest of remodeling jobs, like installing new appliances or updating bathrooms or kitchens, could result in many homes reaching the 30% threshold and triggering higher premium rates.

* Enable FEMA to continue to allow for flexibility for regional issues and to maintain the current residential "basement exception." This exception is currently permitted in just 53 communities and allows home owners who require basements for safety and stability reasons to avoid the higher flood insurance rates under the law.

* Delay the premium rate hikes on second homes. Government data shows the median income of households with a second home is a modest $71,344. Many middle class families who own a second home are facing significantly higher premium rates under the Biggert-Waters Flood Insurance Act. As a result, even if they want to sell their second home, they cannot because the sale would result in a premium price spike for the new owner.

"NAHB is committed to working with this subcommittee and with Congress to find pragmatic solutions that will prevent undue hardship on the recovering housing market, prevent home values from decreasing and make the NFIP stronger and more effective for years to come," said Rutenberg.

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