Flood Insurance Act is Washing Away the American Dream

State Rep. Kevin Haggerty

The Biggert-Waters Flood Insurance Reform Act of 2012 is quite possibly destroying the American Dream to own a home.

Locally, I am investigating several problems with flood insurance that are essentially forcing families in supposed flood zones to pay ridiculously high premiums in order to even be considered for a mortgage. When homeowners are unable to secure a policy the banks have no recourse but to protect their own financial interest.

However, this means the banks take out a new policy on the existing value of the current mortgage but make the homeowner pay the policy through additional monthly payments in their mortgage. So, instead of paying $600 a year for flood insurance, the homeowner might be paying $6,000 a year. The problem is that most of these homes have never flooded and, even if they did, the premium would only cover a fraction of what the home is worth.

If the home did flood, the banks would be paid, not the homeowner, since the estimated value of the home was so under-inflated in order to get the policy completed. So the flood insurance premiums that the homeowners are paying have nothing to do with actual flood insurance.

FEMA directs how all of this takes place in flood zones and changed the rules. In order for homeowners to get a preferred rate, an elevation certification that can cost up to $2,000 must be purchased. When a homeowner can’t afford this certificate, rates on the flood policy skyrocket, making this entire process flawed. Only FEMA regulates these rates.

Now imagine this scenario: an elderly couple tries to sell their house. Who is going to buy their home knowing the unjust requirements for flood insurance in areas that never flood? The original homeowners are trapped. They can’t sell, they can’t afford the mortgage and they are paying flood insurance premiums that will never protect their home. The end result is foreclosure. The Biggert-Waters Flood Insurance Reform Act of 2012 – whether intended or not — is a direct attack on the working poor and middle class.

People who want to own a house will do almost anything to call it their home. They will even pay unnecessary and, in many cases, flawed premiums just so the banks can prepare a mortgage and get them moved in. Bottom line – if this dress rehearsal legislation continues, the American dream of owning a home will be predicated upon practices beneath the standards of our nation that once echoed “Give me your tired, your poor, your huddled masses yearning to breathe free.”

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One Comment

  1. Squandered Youth says:

    This is a very telling analysis but only begins to scratch the surface. The insurance mandate impacts the value of EVERY property – not just homes on sale at the moment. Even if a property owner does not currently have a mortgage and thereby avoids the flood insurance obligation, a purchaser will have to take this obligation into account. Moreover, under Biggert-Waters FEMA can change the “base flood elevation” (BFE) of a property at any time and then use that new elevation to increase premiums. Even if your home is at BFE with a reasonable premium today, there is no guarantee that will be the case tomorrow, as the minimal map change putting a house one foot below BFE generally triples premiums, which REALLY has an impact on property values. The uncertainty destroys real estate markets, which, in some places, have already seen a 20% decline in values. Elevation isn’t an answer since it is ruiniously expensive ($30k to $150k) and there is no certainty that if you elevate to current BFE FEMA won’t change the map tomorrow. Essentially, no one’s life, liberty, property will ever be safe anywhere FEMA can take out its mapping pencil. The hit on property values – a large portion of most people’s retirement assets – far, far exceeds the $25 billion FEMA is trying to use this flawed mechanism to collect. This results in premiums that defy common sense and are so far above actuarial risk no one would buy them – except that the federal requirement that mortgaged properties carry flood insurance COMPELS people to buy this product regardless of what FEMA charges for it. FEMA is not required to take the economic impact of its actions into account, and has refused to do the affordability study which would reveal this impact. This is why implementation of B-W needs to be stopped, FEMA needs to be required to cost-justify the impact of its actions on individual properties, and “grandfathering” needs to be restored to stop FEMA from changing the BFE of homes that complied with FEMA’s BFE requirments at the time of construction.


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