SEP 10, 2013

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Compliance Matters

Flood Insurance Premiums Hikes May Hurt Lending, Communities

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On behalf of the 7,000 community banks represented by the Independent Community Bankers of America, I write to express our serious concerns about the impact of impending, drastic and unsustainable flood insurance premium increases on homeowners, the housing market, mortgage lenders, and the broader economy.

The impact, which could begin as soon as Oct. 1 when changes to the National Flood Insurance Program (NFIP) begin to take effect, is already depressing home values and freezing the market in certain communities.

ICBA urges the House to expeditiously pass legislation to stop the increases until the Federal Emergency Management Administration (FEMA) completes a study to determine their impact on affordability.

In addition, we respectfully urge the Financial Services Committee to convene a hearing to fully explore this critical topic and potential solutions.

As a result of amendments to the NFIP by the Biggert-Waters Flood Insurance Act of 2012, certain properties will be subject to skyrocketing premium increases triggered by a new flood map or by a transfer of ownership. This is true even if the properties were built to code under then-current flood maps (“grandfathered properties”) and have never experienced a flood. Moreover, new flood maps do not take into account a community’s flood mitigation efforts, including levees and pump systems paid for by the community, and therefore mandate unnecessary elevations. In some cases, premiums will increase by 500% or more and the phase-in schedule will do little to offset the impact. 

Premiums of $25,000 a year or more on modest single family homes are disproportionate to the risk and to the value of the home. If no action is taken, these rate increases will:

-Price people out of their homes. New premiums will simply be unaffordable for many middle class homeowners.

-Cause homeowners to drop coverage and thereby undermine the NFIP. 

-Destroy home values. Home values are already dropping in certain communities in anticipation of the rate increases. The St. Charles Parish, Louisiana Tax Assessor estimates that new premiums will depress home values by 18 to 30%. The housing market recovery could be abruptly reversed.

-Undermine the value of mortgage collateral, drive mortgages into delinquency, erode bank capital, and thereby depress new lending.

-Curtail property tax revenues local governments rely on to fund schools and other essential services.

-Depress consumer spending and economic growth.

The impact of rate increases will be seen not only in coastal communities but in any community located near a river. Broad swathes of the country will be impacted.

We urge Congress to act expeditiously to amend the Biggert-Waters Flood Insurance Act. ICBA supports all viable solutions to provide immediate relief for policy holders, including:  A one-year prohibition on FEMA’s use of funds to implement changes to flood insurance rates for grandfathered properties. Rep. Bill Cassidy’s (R-LA) amendment to the Department of Homeland Security Appropriations Act provides such a prohibition.

Any delay in changes to flood insurance risk premiums or any delay of the imposition of full actuarial rates on properties purchased after passage of the Biggert-Waters Flood Insurance Act. Such delays (three years and five years, respectively) are required by the Flood Insurance Implementation Reform Act (H.R. 2199), sponsored by Rep. Cedric Richmond (D-LA).

Requiring FEMA to recognize community-funded flood systems built without federal dollars and to recognize non-structural flood mitigation features. Such recognition is required by H.R. 2199.

Any acceleration of the FEMA affordability study required by the Flood Insurance Act of 2012.

Thank you for your consideration. ICBA supports reforms to strengthen the NFIP.

However, the impending changes will only weaken the NFIP by driving down participation. Premium rate shock will endanger homeowners, mortgage lenders, local governments and the broader economy.

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