A little known act which is only now rising to the attention of all of the U.S. coastal cities is now becoming a nightmare to homeowners. The Biggert-Waters flood insurance reform act of 2012 is now set to affect millions of homeowners from the coasts of Maine down to Florida through Texas and then over to the west coast.
This act appears to have the effect of raising insurance rates from $500 to $2500 to $10,000 and higher. In addition, the increased amount of homes drawn into the flood plains by raising the base flood elevation (BFE) in areas means that homes that did not previously require flood insurance may now require it or those that already required it are now placed in even higher risk categories – all of this with just the stroke of a pen – increasing the BFE.
The Biggert-Waters Act is first reforms began Oct. 1 and the first round of people affected are those with subsidized flood insurance.
For years, homeowners with subsidized insurance were allowed to pay lower rates because their homes were built before the original flood maps were adopted decades ago. Now, those with subsidized insurance on businesses, secondary homes, or homes that have flooded multiple times are seeing rates increase substantially.
Rates are also spiking for new purchases, dating back to July 2012. Thus, if you purchased a home prior to July 2012 that is your primary dwelling your rates could be grandfathered in. If you purchased a home in August of 2012, for example, you probably have already received your notice of rate increase. Grandfathering of current rates for those homeowners who purchased before July 2012 is also set to disappear in a future round of the reform act.
Donald Matter, former Mayor of Nassau Bay said that his rates could hit as high as $30,000 per year just for flood insurance on his $685,000 home.
Congress passed and President Obama signed the Biggert-Waters Flood Insurance Reform Act. It extends the National Flood Insurance Program (NFIP) for five years. It also calls for the Federal Emergency Management Agency (FEMA) and other agencies to make changes to the way in which the NFIP operates.
The act makes several major changes. Higher insurance premiums will be charged for homes and businesses below the Base Flood Elevation (BFE). Rates for some homes in high-risk areas will increase 25% of the newly established premium each year over the next four years starting in 2013. No discounts will be given to homeowners for properties below the BFE, even if they met the building code at the time they were built. Older structures built before a community’s first flood map was issued are known as pre-FIRM buildings. The grandfather rule applies to homes that were built in compliance with the flood map that was in effect at the time the structure was built. Finally, subsidized insurance rates will be phased out for all properties except pre-FIRM primary residences that have not lost their qualification for the rate.
What does this mean to you? Even more – what does this mean for the country?
If the Biggert-Waters act continued, homeowners would be driven from their homes in (pardon the pun) floods – leaving because they cannot pay the insurance rates. Foreclosures would rise and no one would be there to purchase those properties anywhere near the previous values. Values along all coastal areas would plummet to land value where people could obtain the land and build structures that are higher than the current BFE. Biggest losers? Current homeowners, banks holding those mortgages, cities and businesses wherein those homes are located.
Will this really happen? Well, this IS a government program and let’s see how the Post Office is doing. How about Social Security? Freddie MAC? FannieMAE? Now let’s throw Obamacare in the mix – and, well – you see how this is going – all programs that are government run are failing or destined to fail. FEMA is no different – another failed system.
In all actuality we will see increases in insurance rates for those on the coast. Will it ultimately be $30,000 as Matter believes will happen for his home in Nassau Bay – leading to devastation across the country? Very doubtful. We will finally have some resolution that makes sense and keeps home values virtually intact.
Norman Frenk, M.B.A. is a Realtor at Better Homes & Gardens Real Estate – Gary Greene (www.SellThisPlacenow.com and www.BuyThisPlaceNow.com) and owner of Modern Home Designs (www.RedesignMyPlace.com)