My thoughts

by Pat Bradford
Wednesday, October 30, 2013

We have one month left in the 2013 Atlantic hurricane season. So far the storm season in our region has been uneventful, but a hurricane of another sort has been looming over the country, leaving officials and millions of residents from Florida to California to Connecticut wringing their hands over skyrocketing flood insurance rate increases that came into effect beginning Oct. 1. 

But the impending black storm clouds partially lifted this week with the announcement in Washington that a deal had been struck to delay the steep Biggert-Waters rate hikes by four years. 

First reported locally in this column March 6 of this year, the names of the two female legislators Judy Biggert and Maxine Waters identified the act that has become a hyphenated dirty word to property owners located within flood zones holding subsidized flood insurance on businesses, secondary homes and homes that have flooded multiple times.  

Projected flood premiums moved past the $6,000 per year mark to more than $30,000 in some cases and threatened to revive the foreclosure boom, besides killing new sales. 

With the announcement by the bill’s chief author, Rep. Maxine Waters, a dem from Calif., a collective sigh went up across the nation. Waters, also the ranking member of the House Finance Services Committee, brokered the House and Senate bipartisan deal.  

Ms. Waters and Ms. Biggert (R-Ill.) get points for wanting to bring down the ginormous debt of the National Flood Insurance Program, which subsidizes flood insurance premiums, to the tune of more than 25 billion (that is a “b”).

While the onerous bill is not killed, the deal delays most increases in primary home flood insurance rates on specific properties for four years while FEMA conducts an affordability study, mandated by Biggert-Waters but not undertaken. FEMA, bless its pointed head, stated it would take two years to complete the study and there was not time or money to do it before the changes went into effect. It will then take up to an additional two years for FEMA to submit an affordability framework to Congress and for Congress to review the framework.

Andrew Simpson in  U.S. Representative Mike McIntyre’s office said the delay doesn’t cover businesses, second homes, severe repetitive loss and multifamily properties.

In making the announcement, Waters said she wanted to fix the unintended consequences of the Biggert-Waters Flood Insurance Reform Act, so there is hope that before the fix passes it will be more inclusive.

Serving her 12th term, Congresswoman Waters represents the 43rd District, a large part of South Central Los Angeles, and is up for reelection in 2014. 

The heat on this one must have been intense. Federal lawmakers from many states, including Mike McIntyre, also a dem, hoped to secure a delay at the behest of gravely concerned Realtors and property owners, and municipal leaders including Mayor Pro Tem Bill Sisson and former Alderman Bill Blair, who is running unopposed for mayor in next week’s election. In fact, all of the candidates jumped on the bandwagon as municipal elections got geared up.  

FEMA director Craig Fugate was said to be under siege and rightly so. The legislation is a severe blow to business and residential property owners while hamstringing the reemerging real estate markets in areas where flood insurance is required nationwide.

The legislation will hike many flood insurance premiums a staggering 20 to 25 percent per year until reaching the full, unsubsidized rate.

The national flood insurance program subsidizes rates rather than charging full-risk rates. Current premiums paid by property owners are not enough to cover projected costs in the event of a claim. So, not unlike the price of milk, the federal government subsidizes flood insurance premiums. Right or wrong, subsidies are a way of life in this country. Full-risk rates are those for which the premiums charged would actually be enough to cover expected losses as determined by an insurance actuary.

Imagine the public outcry if the government subsidy was removed from milk, or even sugar, leaving the consumer to pay the true price of the item? Sugar and milk would become unaffordable. Biggert-Waters renders flood insurance unaffordable.  

Property owners will not be able to afford flood insurance, but flood insurance in designated Special Flood Hazard Areas around the country is mandatory. 

The legislation has been reported to have had a “chilling” effect on business owners and on home sales already delaying the purchase of homes and in some cases the forfeit of sales already in the works. Locally, Realtors dreaded the impact on what many see as a market on the increase with the potential for more. 

Primary homes, those occupied for at least 80 percent of the year, technically 365 days following the policy effective date, were not going to be affected by the act, unless they have been flooded multiple times. Repetitive losses are defined by FEMA as two or more claim payments of more than $1,000  within any rolling 10-year period. Those previously flooded primary homes would see the rate hike. 

At Wrightsville, it is difficult to find a home or business property not touched by floodwaters during Hurricane Fran in 1996. Hurricane Floyd in 1999 caused 35 fatalities and record–breaking flooding in the Eastern portion of the state.

Coupled with new higher tech FEMA flood maps that could place thousands more properties inside flood zones where they had never been before, the anticipated damage of skyrocketing flood insurance rates to the real estate market was pretty doom and gloom. And this delay is only for some primary homes.

The announcement of up to a four-year delay arriving on the heels of a debilitating federal government shutdown, the ramifications of which are yet unknown for the most part, staves off, for the time being, what could have been locally disastrous to the primary home real estate market that drives much of the economy here as well as around the country. 

Thanking God for the delay, but wishing it was more inclusive. If Rep. Waters is sincere about fixing the unintended consequences of her act, she will step up to the plate for businesses and second homes.

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