Congress looks to private market to cover flood risk

 Residential Mortgage  Comments Off on Congress looks to private market to cover flood risk
Nov 162017

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By G. Steven Bray

Back in Aug, I reported that on Congress’ to-do list was reauthorization of the National Flood Insurance Program, or NFIP. The program will expire on 12/8 unless Congress does something.

Tues, the House passed what it calls the 21st Century Flood Reform Act. The biggest reforms in the bill are provisions to encourage the private flood insurance market, transferring some of the risk away from the government.

Supporters of the reforms say that it will allow for lower cost policies that could appeal even to folks who aren’t required to have flood insurance. 80% of the flooded homes in Houston didn’t have flood insurance mainly because it wasn’t required. They weren’t located in a recognized flood zone. A lower-cost flood policy that could be bundled with homeowner’s and auto policies could be an attractive option.

Opponents of the bill say it will allow the private market to cherry pick the least risky properties from NFIP, making it financially unsound.

The bill also contains a $1 billion mitigation fund. A Pew Charitable Trust study showed that just 1% of homes covered under NFIP have produced almost a third of the claims due to repeat flooding. The funds will help folks modify their homes to reduce flood risk or to help them relocate.

The bill now goes to the Senate where its fate is uncertain. What is certain is that Congress must act in the next month to avoid disrupting the real estate markets in flood-prone communities.

Flood insurance surprise if you refinance

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

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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

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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

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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.