FEMA in Hot Seat After Congress Delays Flood Premium Hikes

Too many homeowners are still waiting for refunds of higher premiums they paid under the Biggert-Waters Act, says an aide to Sen. Robert Menendez. Photo: Bloomberg News

Now that Congress has delayed steep increases in flood insurance premiums, lawmakers and housing interests are on the Federal Emergency Management Agency's case to avoid another bungle.

The agency's clumsy implementation of the 2012 Biggert-Waters Act led to a backlash as the premium hikes shocked many homeowners and nearly halted home sales in coastal areas.

FEMA, which oversees the National Flood Insurance Program, was supposed to conduct an affordability study before raising premiums. But it skipped the study, claiming Congress hadn't provided funding for one. (The agency could not be reached for comment for this story.)

Uproar over the hikes emboldened lawmakers and industry groups to press for a rollback. Sen. Robert Menendez, D-N.J., got involved after seeing the premium notices Hurricane Sandy victims received from insurance agents. New Jersey homeowners who used to pay $800 to $1,000 a year for flood insurance suddenly saw the cost shoot up to $10,000 or more.

After a six-month uphill battle, the House and Senate agreed on a compromise. President Obama signed the Homeowner Flood Insurance Affordability Act on March 21.

As part of that law, Congress directed FEMA to reimburse homeowners who paid higher premiums due the Biggert-Waters Act. Now, Menendez and industry groups are pressing FEMA to move quickly on providing this relief.

"While the senator is pleased that FEMA is moving forward on the critical reforms established in the Homeowners Flood Insurance Affordability law, too many of our constituents are still waiting for relief and he will not be satisfied until they see the law fully implemented," the senator's press secretary, Steven Sandberg, says.

But FEMA has to recalculate the premium rates first, which could delay reimbursements until the end of the year.

"Early action means stability for local housing markets and needed relief for homeowners entitled to refunds and reductions," according to National Association of Realtors president Steve Brown.

The Realtor group "will continue working with FEMA and Congress to quickly issue these refunds to anyone overcharged for flood insurance under Biggert-Waters."

FEMA did, however, move quickly to undo one of the most controversial provisions of the Biggert-Waters Act.

On April 15, the agency issued a memorandum directing insurance agents "stop charging full-risk rates" on older primary residences and businesses that had previously enjoyed subsidized flood insurance rates.

These subsidized properties were generally built before 1975. The Biggert-Waters Act required the buyers of these homes and businesses to pay a premium that reflected the full actuarial risk of a flood and the cost to the NFIP fund.

Sen. Mary Laudrieu, D-La., called this "one of the most harmful provisions from the Biggert-Waters Act," one that had threatened to "rob" families of the equity in their homes.

If the seller was paying a $500 annual flood insurance premium, the buyer might have to pay a $5,000 premium at the closing. Many potential buyers balked at the cost.

"The elimination of the property sales penalty will restore confidence in the real estate markets," the Louisiana senator said in a May 6 press release.

Under the new flood insurance law, flood insurance premium hikes are capped at 18% per year and they must be implemented as part of an annual rate review. The premium increases could be 8% to 12% depending on FEMA's annual rate review, one expert estimates.

The Homeowner Flood Insurance Affordability Act also restored grandfathering that was repealed by the Biggert-Waters Act of 2012. (The law is named after Reps. Judy Biggert, R-Ill., and Maxine Waters, D-Calif.)

A family that purchased a home in a flood zone in 1985, for example, that met the flood insurance requirements at the time was considered a grandfathered property and exempt from future premium increases.

Under the new law, if someone buys a grandfathered house, FEMA can raise the premiums on the new owner by up to 18% a year.


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