Flood insurance program dies if Congress doesn’t act

 Residential Mortgage  Comments Off on Flood insurance program dies if Congress doesn’t act
Aug 312017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Among the many items Congress must address when it returns from summer vacation is the National Flood Insurance Program, or NFIP, which is set to expire on Sep 30.

Homeowners with a mortgage who live in a flood plain are required to carry flood insurance. The NFIP, created by Congress in 1968, provides this coverage for about 5 million policyholders.

Unfortunately, NFIP is in the hole to the US Treasury to the tune of $24.6 billion, and under the current terms of the program, it’s likely to remain insolvent as flood insurance premiums do not reflect the costs of the program.

In 2012, Congress reformed the program to address this problem by requiring NFIP to raise premiums to reflect true risk of loss. It grandfathered existing policies, but required risk-based pricing on change of ownership. That set off immediate wailing in flood-prone areas as full risk rates were 500 or more percent higher than the grandfathered rates. Congress quickly rolled back the requirement and with it the chance for NFIP to crawl out of its financial hole.

The House has passed legislation to reauthorize and reform the program, and industry groups say it’s on the right track as:

– It will continue to allow NFIP coverage of new homes in the 100-year flood plain;

– It will continue grandfathering of existing policies;

– And it will set the floor for premium rate increases to 6.5%.

Interestingly, the bill seems to reinstate the requirement that grandfathered rates end when a property changes hands. Reports are surfacing that this already is impacting real estate sales in coastal areas.

The possibility of better flood insurance

 Regulations, Residential Mortgage  Comments Off on The possibility of better flood insurance
Jun 062016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is diddling with flood insurance again, and if you’re in a flood zone, you may want to pay attention. The House passed a bill about a month ago that would authorize state insurance commissioners to approve flood insurance policies that would be accepted for conventional and government mortgage loans. This means you would have a private insurance alternative to the National Flood Insurance Program (NFIP), which for many is currently the only game in town.

Obviously, the idea is that more competition will lead to more consumer choice. Consumers will be able to shop for an insurance product that meets their particular needs rather than be stuck with the current one-size-fits-all government product.

One interesting twist in the bill is that it would allow homeowners who switch to private insurance to switch back to the NFIP if they aren’t satisfied. Their NFIP insurance rate wouldn’t change as long as they don’t allow coverage to lapse.

The Senate is considering a similar bill that has bipartisan support, so it’s quite possible private flood insurance will become a reality this year.

Flood insurance surprise if you refinance

 Regulations, Residential Mortgage  Comments Off on Flood insurance surprise if you refinance
Jan 082016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If your home is in a flood zone, and you have a mortgage, you need to be aware of regulatory changes that took effect on Jan 1st. The changes implement part of the Biggert-Waters Flood Insurance Reform Act of 2012 and require lenders to escrow flood insurance premiums for most new residential loans.

So, what does this mean for you? If you’re currently paying for flood insurance, and you refinance your home, at closing your lender will set up an escrow account, and you will pay the flood insurance premium as part of your monthly mortgage payment. The change applies even if you do not escrow for property taxes and hazard insurance. This likely will mean more money due at closing because when you escrow, you pay in advance of the bill coming due.

The new regulation has one interesting twist that may be appealing to homeowners who currently pay their own flood insurance premiums. As of Jan 1st, your loan servicer must give you the option to escrow flood insurance premiums. So, if you don’t like paying that flood insurance bill each year, the change allows you to spread the payments out as part of your monthly mortgage payment.

Congress proposes easing flood insurance rate hikes

 Regulations, Residential Mortgage  Comments Off on Congress proposes easing flood insurance rate hikes
Aug 022015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The House of Rep is considering the Flood Insurance Fairness Act of 2015, which expands on last year’s changes to the flood insurance program by providing rate relief for second homes and rental properties. The intent is to allow these homes to receive the same flood insurance premiums as primary residences. While those who experienced the rate shock last year are probably cheering, I question whether this puts the solvency of the program at risk again. The House has a companion bill, the Flood Insurance Market Parity and Modernization Act, which is supposed to address the solvency issue. I’ll update you as I hear more about how these bills will affect both the program and premiums.

Regardless of the outcome of this legislation, one important change to the program already is in effect. Outbuildings that lie in the flood plain no longer result in a flood zone designation for the entire property. The outbuilding must be detached from the primary residential structure and cannot serve a residential purpose, such as sleeping, bathroom, or kitchen facilities.

Flood insurance rate spike

 Residential Mortgage  Comments Off on Flood insurance rate spike
Jun 102015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The recent flooding in our state may have some folks thinking about flood insurance. The National Flood Insurance Program, backed by the federal government, provides the only reasonable insurance for those in flood-prone areas against catastrophic loss.

Unfortunately for those who need the insurance, the government announced an annual surcharge starting this year of $25 for owner-occupied homes in flood zones and a surcharge of $250 for vacation homes. Insurance premiums are heavily subsidized by taxpayers, so the much higher surcharge for vacation homes is intended to reduce that subsidy somewhat on properties that are considered more of a luxury. If you own your vacation home free and clear, you could consider dropping coverage, but unfortunately, if you own a home in a flood zone that has a mortgage, you have no choice but to pony up the extra $250.

FEMA reports that the average premium for homes in flood zones is $638, so the increase for owner-occupied homes is rather mild, especially given reports last year that the fund was in danger of running dry.