Delaying Flood Premium Hikes Is Gaining Momentum in Senate

Mortgage & Real Estate

Support for delaying flood insurance reforms is building as legislators fret over premium hikes that could hurt local housing markets and burn a hole in their constituents’ pockets.

The Senate has already voted 86-13 to break a filibuster on a flood bill (S.1926) that would delay certain premium hikes mandated by the Biggert-Waters Flood Insurance Reform Act that Congress passed in 2012.

The White House has raised certain objections to the bill, known as the Home Flood Insurance Affordability Act, but it is not threatening to veto the legislation.

House leaders are opposed to delaying the premium hikes that are supposed to reflect the real cost of flood insurance and stabilize the National Flood Insurance Program, which is currently $24 billion in debt.

But an overwhelming bipartisan vote in the Senate to pass the measure might force House Republican leaders to reconsider their position.

The Senate bill would delay flood insurance premium hikes on primary residences until the Federal Emergency Management Agency completes an affordability study and Congress approves the new premium structure. Some estimate that process could take four to five years.

Under Biggert-Waters, FEMA was supposed to complete an affordability study before increasing the premiums on homeowners with subsidized or grandfathered premiums.

But some premium adjustments were implemented shortly after Congress passed the Biggert-Waters Act.

Sen. Robert Menendez, D-N.J., got involved in the flood insurance issue after seeing premium notices Hurricane Sandy victims received from their insurance agents.

Residents who used to pay $800 to $1,000 a year for flood insurance suddenly saw the cost shoot up to $10,000 or more.

But Menendez says this is not just a coastal issue. The premium hikes will affect homeowners in every state and “that is why we have such broad bipartisan support.”

As a co-sponsor of S.1926, Menendez says the most costly flood insurance subsidies to businesses will continue to be phased out.

However, charging unaffordable premiums on homeowners will only drive down participation in the flood insurance program, increase disaster costs and leave the flood insurance program in worse financial shape, according to the New Jersey senator.

Housing and financial services companies also are concerned the premium hikes will hurt their customers and undermine the housing recovery.

“If flood insurance premiums go up to an unaffordable level, it can lead to default and foreclosures and no one wants that,” one banking lobbyist said.

The Independent Insurance Agents and Brokers of America, National Association of Home Builders, National Association of Realtors, American Bankers Association, National Association of Counties and Independent Community Bankers of America are working to pass the Home Flood Insurance Affordability bill co-sponsored by Sens. Menendez and Johnny Isakson, R-Ga.

Another the troublesome feature of Biggert-Waters is sticker-shock.

A sale triggers an immediate increase in premiums so that the homebuyer has to pay the full unsubsidized flood insurance rate. This rate is not phased-in over several years and it can’t be paid over several quarters. The buyer has to pay the annual insurance premium at the closing.

This additional or unexpected cost could result in a lower sales price or kill the sale, which has Realtors rallying their troops to contact their senators and congressmen.

Senate majority leader Harry Reid, D-Nev., doesn’t like it. “Since higher premiums would kick in whenever a home is sold, still-struggling housing markets across the country could stumble if Congress allows flood insurance rates to skyrocket,” Reid said.

Meanwhile, grandfathered residential properties will lose their subsidized premiums once FEMA completes a remapping of the flood zone. That remapping triggers premium increases of 20% a year until the homeowner is paying the actuarially sound flood insurance rate.

Congress temporarily delayed those premium hikes by slipping a provision into an appropriations bill that President Obama recently signed.

The appropriations bill expires Oct. 1. The Senate bill would delay premium increases on grandfathered properties until FEMA completes the affordability study.

The Senate is expected to pass S.1926 by the end of this week. The measure then goes to the House where its fate is uncertain.

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