Consider the fate a typical working homeowner who called me last week. His cement block on slab home, assessed at $70k, is about three feet below flood, yet hasn’t any previous flood claims.
He’s owned it nine years and makes enough money to cover the mortgage and related costs.
Now, his flood insurance bill is about to increase from $700 annually to $23,000.
His two immediate options are to sell or elevate. Yet neither is viable.
Any potential buyer would run away from the prospects of purchasing a home with such an annual flood insurance cost. That’s without the sale triggering an immediate full-rate escalation. To sell it, he’d need to drop the price to some ridiculous amount that’d leave his mortgage unfulfilled.
Elevation is his next consideration. Yet the cost of elevating a CBS-on-slab home would be more than the value of his house.
If you’re going to do that, you might just as well demo the house and build a new one. Problem is, he qualified for the first loan, but wouldn’t for another to either elevate or rebuild.
So he can’t sell it, can’t elevate and can’t rebuild. Is his best next option to walk away from the house and let the bank take it?
Aren’t we now recovering from just such scenarios having played-out across our nation.
If you were to say: “Tough luck for that Guy,” you’d be under-assessing the problem.
We’re four weeks into the Oct. 1 effective date, and each week I’m getting more and more calls, as these peoples flood policies come due for renewal.
Now start multiplying these scenarios and it quickly becomes a major hit to our local economy while simultaneously eliminating workforce housing.
Real Estate is already suffering, as their related industries have started laying-off employees and considering closing offices statewide.
These aren’t wealthy people with beachfront homes. These are everyday working people with inland 1950’s era homes.
Nor is this simply the coastal community problem may perceive. In many ways this county developed based upon waterborne transportation, with emerging cities growing from its riverbanks.
Those cites are just, if not more vulnerable than coastal communities. They too will begin to get wacked by horrific rate increases. The answers to which may be just as fleeting.
Scott Fraser, Floodplain Administrator
City of Key West, Florida
Scott; Thank you for the information in your remarks. Maybe we need to phase out the subsidies over a much longer period, but I would suggest that we do need to phase them out.
Agreed. Problem is, these horrific increases are being implemented right now.
Right now, property owners suddenly find themselves between a rock and a hard place, with no visible way out. Right now, jobs are being lost and housing is about to suffer another serious blow.
Relief is needed right now. The problem is only going to get worse as more policies come up for renewal each month.
The required affordability study called for in the reform act, appears more like an after-thought, as this study – as yet unconducted – was never tied to implementation.
This pace is not sustainable; it will implode. The only question is: When and how much damage will occur before the necessary relief occurs.
The Menendez-Isakson “Homeowner Flood Insurance Affordability Act” introduced just last week in both houses might just accomplish both goals.
It effectively creates a four-year implementation delay and links the affordability study to final implementation. This just might provide the mechanism and time to do it appropriately.
I am nervously awaiting my yearly flood insurance bill. I am in a flood plain and have had water in my crawl space a few times over the 13 years that I have lived there. It’s only a 1260 square foot home and I pay over $2000 per year now. I have been unable to sell or refinance because of the drop in value over recent years. I was relieved to finally see prices move upward and planned to try to sell in the spring. Due to this new law I can’t see how I will ever be able to sell. I can’t afford to pay to raise the property and cannot afford to pay many times my current rate. Even if they phase it in, I know it won’t be sustainable. After spending my whole life with good credit and conscientiously paying my bills I will probably end up having no choice but to walk away. I know there are many folks in the same boat. I can’t help but think there must be a better way. Especially since this won’t really help the program if we are unable to pay the amounts they are asking for.
This is the exact same senario beinging to playout across the land. It’s getting worse each month as new policies come due for removal and homeowners are getting hit with sticker shock.
It doesn’t appears as though the temporary fix to BW-12 will get any traction leading to passage. Therefore, this senario will easily result in way too many homeowners like Kelly walking away from their homes.
In the past, banks that forclosed didn’t continue flood insurance coverage on these properties, because the fine for not doing so was considerably cheaper than the actual insurance. This has changed. Now banks face a stiff penality for not continuing flood coverage.
So lets say a homeowner walks away from a property due to annual flood insurance bills of $10k or more. How long can the bank afford to pay for such coverage, multiplied by all the forclosures they have within a flood zone.
FEMA estimates only 20% of all policy holders will be affected, but in my city, 42% will be affected.
This simply isn’t sustainable. It’s going to knock us all right back into the recession we just climbed out from.
November 11, 2013 at 4:18 pm
Pat says:
Like or Dislike:
0
0
Flood insurance should be required for all properties in flood zones with the clear understanding if you are uninsured and there is a flood, you get no assistance from the government. This would bring in more properties to the pool and spread the risk better. Then start with new construction and only have unsubsidized premiums to eliminate one incentive for people to build in high risk areas. Second homes and re-sales go next with a 5 year phase in (phase in for re-sales to minimize market disruption). Finally for existing primary residences, phase in the increases over 10 years. This should give people enough time to plan their budgets.
All properties within a regulated flood zone are required to maintain flood insurance if there’s a mortage on the property from an instituion backed by the federal governement.
If a homeowner is flooded and doesn’t have flood insurance, then the amount the property owner would have received, had a flood insuance policy been in affect, is deducted from the amount of disaster recovery assistance given.
New construction within a flood zone wouldn’t be eligible for any subsidized premiums, as they are required to be built above flood and would be rated as such.
How much does Charles Fugate really need to run the NFIP. Lets see. In his own words he said we have 25 Billion debt. Divided that by the 5.4 million policy holders (he said are in the program) and that equals a $4,555 one time assessment to pay it off and start from scratch. Then he and CBO reported that they need to collect another 1.5 billion annually to build a reserve. That breaks down to $277 per policy holder. Therefore, each homeowner really needs to come up with about $4,900 to pay off this debt and start a reserve. If you tap this debt onto the 1.2 million policy holders that they claim are responsible for 45% of all debt since the inception of the program, which is the repetitive loss properties, this figure still only comes to $17,000 per household with the reserve included. Note: CBO reported that the second homeowners which only add up to about 345,000 policy holders in the entire country don’t account for any of the debt in their congressional reports, while we already pay 20% higher premiums on policies over $100,000 insurance than primary homeowners and also receive less claim coverage with at cost, less depreciation vs. primary homeowners replacement value) In NJ this proved horrific during Sandy as thousands of homes sit unrepaired because NFIP paid them an average of $40,000 for totally gutted homes. How can they justify increasing their premiums again, when they provide an inferior insurance product. Lastly, if they claim that they are increasing premiums only on the 1.2 million policyholders, people in and out of this group should not be reporting back that they are receiving bills totaling 10,20 and $30,000 annually for coverage. Additionally, they are remapping the country and bringing hundreds of thousands of new policy holders into the pool, and further causing higher premiums on existing primary homeowners when the house rests at lower levels on the new ABFE’s once made FIRM. This is overkill at the expense of families loosing their homes. To state that second homeowners are rich enough to afford these ridiculous premiums is outrageous. The insurance is for a maximum of $250,000 regardless of the value of the home. Thousands of the homeowners are blue collar people with 800-1,000 sq. ft. bungalows who took their excess funds and bought homes that have huge mortgages that mandate this insurance purchase. Many of these mortgages are attached to their primary homes too. Therefore, when they can’t pay this insurance, and attempt to foreclose the bank will go after their primary residence for the balance owed or they end up in bankruptcy. Are you actually saying it is o.k. to charge these high premiums and destroy their lives too after we have it documented in NJ that the policy terms don’t repair their damages. This is criminal at best for FEMA, Congress and Fugate to believe this is the answer. I strongly believe that Congress has been mislead by FEMA to the actual facts of what our premiums will truly be. Fugate is incorrect to state that we have been subsidized by the taxpayers when it is an interest bearing loan. Throughout the entire history of the program, NFIP has borrowed from the treasury and has always paid the debt back with interest. To date, we have not defaulted on the loan and payments are current. This is a lucrative deal our government may not wish to loose which actually subsidizes the taxpayers to the tune of 8 Billion taken from our premiums to date since 2006. Also, these actuarial rates they claim to be charging us, does not account for any payments to pay down the debt. therefore they always will leave us with needing to collect this extra billion annually in our premiums to give to the treasury instead of using that 1 Billion towards the reserve needed. The taxpayers have not paid one penny to subsidized our premiums and second homeowners already are discriminated against as noted above. How much blood can you attempt to justify taking from a stone. Congress needs to become seriously engaged and get these facts straight. They are having the wool pulled over their eyes. Visit our grassroots facebook pages. STOP FEMA NOW and SECOND HOMEOWNERS RISE UP TO STOP FEMA NOW
Realize that overspending waste and mismanagement by NFIP is also a key issue. Is it really necessary to pay 55% of our annual premiums to run the program. 30% goes to Insurance Companies commissions without them holding any liability on each policy they write, and 20% to internal administrative costs. This doesn’t include another 30% plus expenses to the Insurance Company for handling a Claim after a flood event. Then we pay another 30% of our premiums to interest. This data is from CBO reports which also state that NFIP has serious overspending issues due to poor policies and procedures which causes their employees need to duplicate their work because of an inefficient computer programs and continuous loss of documents. They spent billions for a program that was later dropped. I’m curious why the Insurance Lobbyists in Washington could be applauding Congress for passing this law when it doesn’t affect them personally through any liability. Could it be that they stand to make a huge profit from increased 30% + 30% commissions and claims managing. Hmm, just add it up. If they sell a policy valued at $1,000 dollars, they earn $300.00, but if that same policy now costs, $10,000, they earn $3,000. Times that by 5.4 Million flood policies around the nation. There is no measure to decrease their commission in the Biggert Water’s Act of 2012. Was this another justified expense we should pay out of our NFIP premiums?
Also note that my primary home never flooded and was built in 1968. It rests one foot above the BFE, but my recent insurance bill came in at $5,600.00. That is without the three additional increases forthcoming. I really don’t understand the logic to this article that we aren’t being bombarded with unaffordable rates based upon our risk.
If only it were that easy.
Consider the fate a typical working homeowner who called me last week. His cement block on slab home, assessed at $70k, is about three feet below flood, yet hasn’t any previous flood claims.
He’s owned it nine years and makes enough money to cover the mortgage and related costs.
Now, his flood insurance bill is about to increase from $700 annually to $23,000.
His two immediate options are to sell or elevate. Yet neither is viable.
Any potential buyer would run away from the prospects of purchasing a home with such an annual flood insurance cost. That’s without the sale triggering an immediate full-rate escalation. To sell it, he’d need to drop the price to some ridiculous amount that’d leave his mortgage unfulfilled.
Elevation is his next consideration. Yet the cost of elevating a CBS-on-slab home would be more than the value of his house.
If you’re going to do that, you might just as well demo the house and build a new one. Problem is, he qualified for the first loan, but wouldn’t for another to either elevate or rebuild.
So he can’t sell it, can’t elevate and can’t rebuild. Is his best next option to walk away from the house and let the bank take it?
Aren’t we now recovering from just such scenarios having played-out across our nation.
If you were to say: “Tough luck for that Guy,” you’d be under-assessing the problem.
We’re four weeks into the Oct. 1 effective date, and each week I’m getting more and more calls, as these peoples flood policies come due for renewal.
Now start multiplying these scenarios and it quickly becomes a major hit to our local economy while simultaneously eliminating workforce housing.
Real Estate is already suffering, as their related industries have started laying-off employees and considering closing offices statewide.
These aren’t wealthy people with beachfront homes. These are everyday working people with inland 1950’s era homes.
Nor is this simply the coastal community problem may perceive. In many ways this county developed based upon waterborne transportation, with emerging cities growing from its riverbanks.
Those cites are just, if not more vulnerable than coastal communities. They too will begin to get wacked by horrific rate increases. The answers to which may be just as fleeting.
Scott Fraser, Floodplain Administrator
City of Key West, Florida
Scott; Thank you for the information in your remarks. Maybe we need to phase out the subsidies over a much longer period, but I would suggest that we do need to phase them out.
Agreed. Problem is, these horrific increases are being implemented right now.
Right now, property owners suddenly find themselves between a rock and a hard place, with no visible way out. Right now, jobs are being lost and housing is about to suffer another serious blow.
Relief is needed right now. The problem is only going to get worse as more policies come up for renewal each month.
The required affordability study called for in the reform act, appears more like an after-thought, as this study – as yet unconducted – was never tied to implementation.
This pace is not sustainable; it will implode. The only question is: When and how much damage will occur before the necessary relief occurs.
The Menendez-Isakson “Homeowner Flood Insurance Affordability Act” introduced just last week in both houses might just accomplish both goals.
It effectively creates a four-year implementation delay and links the affordability study to final implementation. This just might provide the mechanism and time to do it appropriately.
I am nervously awaiting my yearly flood insurance bill. I am in a flood plain and have had water in my crawl space a few times over the 13 years that I have lived there. It’s only a 1260 square foot home and I pay over $2000 per year now. I have been unable to sell or refinance because of the drop in value over recent years. I was relieved to finally see prices move upward and planned to try to sell in the spring. Due to this new law I can’t see how I will ever be able to sell. I can’t afford to pay to raise the property and cannot afford to pay many times my current rate. Even if they phase it in, I know it won’t be sustainable. After spending my whole life with good credit and conscientiously paying my bills I will probably end up having no choice but to walk away. I know there are many folks in the same boat. I can’t help but think there must be a better way. Especially since this won’t really help the program if we are unable to pay the amounts they are asking for.
This is the exact same senario beinging to playout across the land. It’s getting worse each month as new policies come due for removal and homeowners are getting hit with sticker shock.
It doesn’t appears as though the temporary fix to BW-12 will get any traction leading to passage. Therefore, this senario will easily result in way too many homeowners like Kelly walking away from their homes.
In the past, banks that forclosed didn’t continue flood insurance coverage on these properties, because the fine for not doing so was considerably cheaper than the actual insurance. This has changed. Now banks face a stiff penality for not continuing flood coverage.
So lets say a homeowner walks away from a property due to annual flood insurance bills of $10k or more. How long can the bank afford to pay for such coverage, multiplied by all the forclosures they have within a flood zone.
FEMA estimates only 20% of all policy holders will be affected, but in my city, 42% will be affected.
This simply isn’t sustainable. It’s going to knock us all right back into the recession we just climbed out from.
Flood insurance should be required for all properties in flood zones with the clear understanding if you are uninsured and there is a flood, you get no assistance from the government. This would bring in more properties to the pool and spread the risk better. Then start with new construction and only have unsubsidized premiums to eliminate one incentive for people to build in high risk areas. Second homes and re-sales go next with a 5 year phase in (phase in for re-sales to minimize market disruption). Finally for existing primary residences, phase in the increases over 10 years. This should give people enough time to plan their budgets.
All properties within a regulated flood zone are required to maintain flood insurance if there’s a mortage on the property from an instituion backed by the federal governement.
If a homeowner is flooded and doesn’t have flood insurance, then the amount the property owner would have received, had a flood insuance policy been in affect, is deducted from the amount of disaster recovery assistance given.
New construction within a flood zone wouldn’t be eligible for any subsidized premiums, as they are required to be built above flood and would be rated as such.
How much does Charles Fugate really need to run the NFIP. Lets see. In his own words he said we have 25 Billion debt. Divided that by the 5.4 million policy holders (he said are in the program) and that equals a $4,555 one time assessment to pay it off and start from scratch. Then he and CBO reported that they need to collect another 1.5 billion annually to build a reserve. That breaks down to $277 per policy holder. Therefore, each homeowner really needs to come up with about $4,900 to pay off this debt and start a reserve. If you tap this debt onto the 1.2 million policy holders that they claim are responsible for 45% of all debt since the inception of the program, which is the repetitive loss properties, this figure still only comes to $17,000 per household with the reserve included. Note: CBO reported that the second homeowners which only add up to about 345,000 policy holders in the entire country don’t account for any of the debt in their congressional reports, while we already pay 20% higher premiums on policies over $100,000 insurance than primary homeowners and also receive less claim coverage with at cost, less depreciation vs. primary homeowners replacement value) In NJ this proved horrific during Sandy as thousands of homes sit unrepaired because NFIP paid them an average of $40,000 for totally gutted homes. How can they justify increasing their premiums again, when they provide an inferior insurance product. Lastly, if they claim that they are increasing premiums only on the 1.2 million policyholders, people in and out of this group should not be reporting back that they are receiving bills totaling 10,20 and $30,000 annually for coverage. Additionally, they are remapping the country and bringing hundreds of thousands of new policy holders into the pool, and further causing higher premiums on existing primary homeowners when the house rests at lower levels on the new ABFE’s once made FIRM. This is overkill at the expense of families loosing their homes. To state that second homeowners are rich enough to afford these ridiculous premiums is outrageous. The insurance is for a maximum of $250,000 regardless of the value of the home. Thousands of the homeowners are blue collar people with 800-1,000 sq. ft. bungalows who took their excess funds and bought homes that have huge mortgages that mandate this insurance purchase. Many of these mortgages are attached to their primary homes too. Therefore, when they can’t pay this insurance, and attempt to foreclose the bank will go after their primary residence for the balance owed or they end up in bankruptcy. Are you actually saying it is o.k. to charge these high premiums and destroy their lives too after we have it documented in NJ that the policy terms don’t repair their damages. This is criminal at best for FEMA, Congress and Fugate to believe this is the answer. I strongly believe that Congress has been mislead by FEMA to the actual facts of what our premiums will truly be. Fugate is incorrect to state that we have been subsidized by the taxpayers when it is an interest bearing loan. Throughout the entire history of the program, NFIP has borrowed from the treasury and has always paid the debt back with interest. To date, we have not defaulted on the loan and payments are current. This is a lucrative deal our government may not wish to loose which actually subsidizes the taxpayers to the tune of 8 Billion taken from our premiums to date since 2006. Also, these actuarial rates they claim to be charging us, does not account for any payments to pay down the debt. therefore they always will leave us with needing to collect this extra billion annually in our premiums to give to the treasury instead of using that 1 Billion towards the reserve needed. The taxpayers have not paid one penny to subsidized our premiums and second homeowners already are discriminated against as noted above. How much blood can you attempt to justify taking from a stone. Congress needs to become seriously engaged and get these facts straight. They are having the wool pulled over their eyes. Visit our grassroots facebook pages. STOP FEMA NOW and SECOND HOMEOWNERS RISE UP TO STOP FEMA NOW
Realize that overspending waste and mismanagement by NFIP is also a key issue. Is it really necessary to pay 55% of our annual premiums to run the program. 30% goes to Insurance Companies commissions without them holding any liability on each policy they write, and 20% to internal administrative costs. This doesn’t include another 30% plus expenses to the Insurance Company for handling a Claim after a flood event. Then we pay another 30% of our premiums to interest. This data is from CBO reports which also state that NFIP has serious overspending issues due to poor policies and procedures which causes their employees need to duplicate their work because of an inefficient computer programs and continuous loss of documents. They spent billions for a program that was later dropped. I’m curious why the Insurance Lobbyists in Washington could be applauding Congress for passing this law when it doesn’t affect them personally through any liability. Could it be that they stand to make a huge profit from increased 30% + 30% commissions and claims managing. Hmm, just add it up. If they sell a policy valued at $1,000 dollars, they earn $300.00, but if that same policy now costs, $10,000, they earn $3,000. Times that by 5.4 Million flood policies around the nation. There is no measure to decrease their commission in the Biggert Water’s Act of 2012. Was this another justified expense we should pay out of our NFIP premiums?
Also note that my primary home never flooded and was built in 1968. It rests one foot above the BFE, but my recent insurance bill came in at $5,600.00. That is without the three additional increases forthcoming. I really don’t understand the logic to this article that we aren’t being bombarded with unaffordable rates based upon our risk.