On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act, which repeals part of the Biggert-Waters Flood Insurance Reform Act of 2012 and makes changes to other programs the act doesn’t cover, into law. While the new law did repeal and make changes to many provisions of the 2012 law, there are many provisions from that law that remain, some of which are still in the process of being implemented.
Impact on Real Estate Markets
One of the big provisions of the new law have direct impacts on the real estate industry. Considering that most flood insurance policies are heavily subsidized, the ultimate goal of the government is to end the subsidies while providing as little “sticker shock” to the public as possible.Realtor.org explains the new provisions as they impact real estate. Some of the highlights are mentioned below.
In an effort to do this, new provisions repeal the ability of FEMA to raise flood insurance rates when properties are sold. This means that buyers aren’t met with an unpleasant surprise regarding flood insurance costs at closing and will, instead, assume the current flood insurance rates the seller of the home until the yearly renewal date.
It also grandfathers properties that were built and maintained to meet the requirements of a specific code zone so that they aren’t penalized when FEMA correct inaccurate zoning ratings on subsequent flood maps or redefines flood zones.
Places caps on premium increases (8 percent maximum increases annually for new properties and 25 percent maximum annual increases for older properties). Refunds owners who have overpaid premiums according to the new amendments.
How Alarmed Should Taxpayers Be?
The original goal of the National Flood Insurance Program was to provide flood insurance coverage to people even though insurance companies found flood protection to be an unacceptable risk. The government stepped in and offered an affordable option that allowed homeowners and businesses to purchase insurance.
Since the government didn’t have to worry about profit, the insurance program was able to remain solvent for a while. Unfortunately, widespread flooding events and continuous building in high risk areas has made the program much more costly for U.S. taxpayers.
Flood insurance reform is about addressing the rising costs to taxpayers compared to the practice of building in high risk/high cost areas. Those who choose to build or buy homes in area where there are greater risks of flooding due to erosion, extreme weather conditions, and rising sea levels face higher flood insurance costs – easing the burden on taxpayers.
There is heavy criticism on all sides of the issue. Those who live in coastal regions left feeling a substantial pinch after the Biggert-Waters Act applaud the more recent changes while many believe the cuts of the 2014 act is a fiscally irresponsible move for a government plagued by debt to make for an organization that has$3.5 billion in annual revenue, $28 billion in current debt, and $527 billion in liability.