PAR president testifies about flood insurance crisis

The National Flood Insurance Program crisis was the topic of two state hearings this week in Harrisburg. Pennsylvania Association of Realtors® (PAR) President Kim Skumanick provided testimony regarding flood insurance issues homeowners and homebuyers have experienced because of the recent changes. On Monday, she appeared before a House Democratic Policy Committee and on Tuesday before the state Senate Banking and Insurance Committee and the Senate Environmental Resources and Energy Committee.

The hearings were held because homeowners and homebuyers are experiencing problems in purchasing properties in the flood zones following the enactment of the Biggert-Waters Act. On October 1, the Federal Emergency Management Agency (FEMA) imposed full-risk actuarial rates on all properties purchased after July 2012. Because FEMA waited and then retroactively applied these increases, homebuyers bought their properties before they could be warned. The National Association of Realtors® (NAR) is urging U.S. senators to vote for S.1926, the Homeowner Flood Insurance Affordability Act, which would delay potentially inaccurate and uncapped rate increases on recent home purchases until FEMA investigates and reports to Congress with an affordability solution.Skumanick’s testimony gave several examples of properties in flood plains in Luzerne and Lycoming counties which are unable to be sold because the new flood insurance rates are dramatically higher than the current homeowners’ rates.

“My office had a client who listed his Wilkes-Barre home for $90,000,” Skumanick said. “The property experienced minor flooding nearly 20 years ago and the owner’s annual flood insurance premium was $788. A homebuyer made an offer on the house but rescinded it when he discovered the new flood insurance rate would be $7,015. A rate hike makes it nearly impossible to sell his property to someone who needs a mortgage because the monthly flood insurance premium would exceed the principal and interest on the mortgage.”

Skumanick added, “A Realtor® colleague in Lycoming County recently had three listings in the flood plain that have had no activity on them once buyers learned of the new flood insurance rates. The homes were listed between $81,000 and $120,000 and the annual flood insurance rate quotes ranged from $4,000 to $7,000. All three are now rental properties as the owners are unable to sell their properties.”

Realtors® believe problems like this will become more commonplace because FEMA has yet to implement section 207 of the act because it only recently began collecting data on “grandfathered” properties, i.e., those properties that have been mapped and are paying an actuarial rate but whose risk has increased due to new maps. In the past, these properties were allowed to keep their original risk rates because they were built to code at the time. FEMA has posted on its site that it will begin phasing out grandfathered rates in late 2014.

NAR and PAR believe there are four causes to this insurance crisis: the unintended complications due to the law, its flawed implementation, insurance rating errors and flood map updates.

The Realtor® organizations believe FEMA should implement other provisions that could help homeowners in the area of affordability:

• Complete the affordability study required by Biggert-Waters so Congress can understand and act on the rate changes; the report was due April 2013 but may not be completed for another two years.
• Provide for installment payments and reimbursement for successful flood map appeals. We are not aware of FEMA’s plans to initiate either rulemaking any time soon.
• Issue a “without levee” policy to give partial credit in the premium rates for any flood protection provided by a dam or levee that has not been federally accredited.