WASHINGTON — A key housing market group is objecting to a provision of a bill passed by the House Financial Services Committee that would impose a surcharge on National Flood Insurance Program policies for newly constructed homes if a state does not allow the sale of private flood insurance.

While the National Association of Home Builders supports the development of a private flood insurance market, it says that taking a punitive approach is a bad idea. Instead, it is seeking a bill that would spur private insurers to enter the new-construction market.

"Why don't we let that work?" said Jerry Howard, the homebuilder group's CEO.

Flooded house
Some provisions of a House bill designed to encourage the development of a private flood insurance market will delay closings and raise costs, the National Association of Home Builders said.

The group supported an amendment to strike the surcharge, which was backed by Democrats and Rep. Peter King, R-N.Y., but the measure failed. The panel approved the overall bill 30 to 26.

Under the bill, National Flood Insurance Program policies would not be available after Jan. 1, 2021, for buyers of newly built homes in high-risk flood areas, if private flood insurance is available. If private policies are not available, the homebuyer would have to pay a 10% surcharge above the NFIP premium rate.

The surcharge is designed to encourage the development of the private flood insurance market but also to discourage new construction in high-risk flood areas and reduce losses to the federal flood insurance program.

The overall bill, by Rep. Sean Duffy, R-Wis., would create a new bureaucracy to receive applications from buyers who want to purchase a home that is located in a 100-year flood plain. A new Flood Insurance Clearinghouse would be created to match homebuyers with private insurers. That is also raising objections from the homebuilder trade group.

"Our first take is that it is going to delay closings and it is going to complicate a process that doesn’t need to be complicated," Howard said.

Congress is under pressure to reauthorize the National Flood Insurance Program, which is slated to expire at the end of September.

The 21st Century Flood Reform Act reauthorizes the NFIP for five years and provides $1 billion in funding for flood mitigation projects.

The homebuilders are not the only ones that have problems with the bill. While the National Association of Realtors supports the overall bill, it opposes a provision that would terminate the grandfathering of flood insurance premiums.

The Duffy bill would eliminate the grandfathering after four years, meaning that even homeowners who built to code and elevated their homes will have to pay higher premiums if they suffer substantial flood damage or their property is remapped into a high-risk flood zone.

“Unfortunately, we have strong concerns over elements of the 21st Century Flood Reform Act that could lead to consumer confusion and market disruptions. It’s imperative that Congress work together to avoid a repeat of the challenges that emerged following the Biggert-Waters reauthorization in 2012," the Realtor group's president, William Brown, said in a press release.

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