Real estate and flood hazard groups are urging the Department of Housing and Urban Development to make permanent a waiver that has allowed homeowners to use 203(k) loans to repair and elevate their homes to prevent future flood damage and lessen the financial burden of flood insurance requirements.
In response to Hurricane Sandy, HUD waived certain restrictions on Federal Housing Administration’s 203(k) loans to make renovation financing more available — namely, a provision that prevents borrowers from using the loans to make changes to a property’s foundation and rules out paying for elevation changes.
“Each year the federal government spends billions of dollars on disaster relief to flood victims — all at taxpayer expense. Allowing homeowners to use the 203k program to mitigate flood risk will lower those costs, and make our communities more sustainable,” according to a July 31 joint letter by NAR and NAHB.
The 203(k) program has traditionally been used to purchase or refinance a home and provide financing for substantial renovations in a single transaction. The National Association of Realtors, Association of Floodplain Managers and other groups want HUD to make the waiver, currently set to expire in March 2015, permanent.
If the changes suggested by the trade groups are made, 203(k) loans could be used to make renovations that lower the homeowner’s flood insurance costs before any flood damage occurs. It would also help homeowners who suddenly find they are a flood plain due to remapping by the Federal Emergency Management Agency, which administers the National Flood Insurance Program.
In a June 24 letter to the Association of Floodplain Managers, an FHA official agreed that the waiver has helped many distressed homeowners. And the acting director of the FHA’s home mortgage insurance division Kevin Stevens said that elevation is permissible under the FHA 203(k) program.
“The mitigation flood risk to an existing home either through relocation or elevation of the existing structure is permitted under the 203(k) program,” Stevens said.
However, the June 24 letter refers to FHA Mortgage Letter 2013-36 that granted the 203(k) foundation waiver for homes that were damaged by Hurricane Sandy. The letter doesn’t mention an extension of the waiver.
NAR senior policy representative Megan Booth called the June 24 letter a “partial victory.” But the Realtors still want a clarification on the elevation issue. “If you are altering the existing foundation, we are asking for a broader waiver,” she said in an interview.
The trade groups are urging FHA to make the waiver permanent so that homeowners in any flood plain can use 203(k) loans to make elevation changes and other repairs, such as installing flood vents, to mitigate flood risk.
“Elevation costs can range from $20,000 to more than $100,000,” according to NAR and the National Association of Home Builders. “We urge you to issue a new mortgagee letter, clearly stating that flood mitigation is an eligible activity under the 203k program, and making the waiver permanent.”
Meanwhile, FEMA has rolled back flood insurance premiums since Congress passed a flood insurance reform bill in March. The agency is keeping rates at 2012 levels and any buyers or policy holders that were charged higher rates in 2013 are eligible to refunds. The refunds will come from the insurance companies that sell flood insurance policies.
FEMA is also in the process of starting up a new Office of the Advocate mandated by the reform bill. The new office is supposed to assist policy holders, consumers and property owners with flood insurance concerns.
“If they have questions about their rates, their premiums and how to get flood insurance, that could be directed to the Advocate’s office,” according to NAR senior regulatory representative Russell Riggs.
The Realtors are concerned that FEMA may simply rely on call-center approach that might not be equipped to investigate or take corrective measures.
“We hope it will be more robust program than just a call center,” Riggs said in an interview. “And it has to be independent from FEMA to really chase down and investigate issues related to flood insurance premiums and rights. We would like it to have some teeth.”