HUD Flood Plan Provokes Battle Between Home Builders, Environmentalists

WASHINGTON — The Department of Housing and Urban Development's proposed guidance for the construction of new homes located in flood plains is sparking a fight between homebuilders and environmentalists.

The agency released a plan last week that would stipulate that newly constructed homes financed by the Federal Housing Administration would have to be elevated two feet above the 100 year-based flood level.

That prompted an outcry from the National Association of Home Builders, which said the plan is inconsistent with the federal flood insurance program and most building codes.

The new plan "on flood plain management will severely disrupt the housing market," said Ed Brady, chairman of the National Association of Home Builders. The proposal could "harm affordability for millions of Americans living in areas that are designated under an expanded flood plain definition, where in many cases the odds of facing a flood event are extremely remote.”

It will also "make housing cost-prohibitive for working families in communities located in and around flood plains," Brady warned.

But the plan is supported by environmentalists and consumer groups, who see the proposal as a sensible precaution by HUD.

"It is common sense that HUD would want safer housing," said Rob Moore, senior water policy analyst at the Natural Resources Defense Council, in a press release. "The poorest members of a community often are the least prepared for a disaster and have less financial resources to rebuild their lives in the aftermath."

The new elevation requirement does not apply to refinancings unless the borrower is seeking FHA financing to fund substantial renovations or improvements that amount to 50% of the value of the property. The plan would also not apply to manufactured housing units insured by FHA.

It would apply to multifamily properties, however, a prospect that the National Association of Home Builders find worrying because it could drive up costs.

These properties might "not get the improvements they need and people will end up living in substandard housing as a result," said David Ledford, NAHB senior vice president for housing finance and regulatory affairs, in an interview.

The plan also includes FHA-financed hospitals, nursing homes and other major facilities, which must be elevated three feet above the base flood elevation level, or the 500-year flood plain, whichever is greater.

"Our nation is faced with mounting and compelling evidence that future flooding events will be increasingly costly and frequent,” said HUD Secretary Julián Castro in an Oct. 27 press release.

"If we're serious about protecting people and property from flooding, we have to think differently than we did 40 years ago. Today we begin the process of aligning our regulations with the evidence to make sure taxpayer dollars are invested in the most responsible and resilient manner possible.”

HUD claims the proposal will cost around $5,000 to elevate a home, but critics disagree.

"It is fair to say that is a gross underestimate," Ledford said.

Flood maps are not universally available in many areas of the country so builders will have to pay a surveyor to determine the suitability of each site and the proper elevation.

Ledford also argued that Fannie Mae and Freddie Mac are not bound by HUD's elevation requirements, which differ from those of the National Flood Insurance Program.

HUD is "creating a lot of unnecessary confusion and uncertainty" over this proposal, Ledford said.

The HUD plan comes as the five federal banking and credit union regulators have issued a joint proposal that would open the door for lenders to accept private flood insurance policies.

A law sponsored by Reps. Judy Biggert, R-Pa., and Maxine Waters, D-Calif., and passed in 2012 requires regulated lenders to accept flood insurance issued and backed by private insurers that meet certain requirements.

The joint-agency plan attempts to clarify the Biggert-Waters Act of 2012 and "assist lending institutions in identifying private flood insurance policies they would be required to accept," according to the proposal issued on Monday.

The plan also attempts to clarify that "lenders retain their discretion to accept private flood insurance policies that do not meet the criteria for mandatory acceptance, provided certain conditions are met."

The proposal is being used for a 60-day comment period.

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