While flood map updates generally are largely improved and occurring in an accurate and relatively timely fashion, it appears the question of whether levees should be “decertified” has reached an impasse for the time being.
This is in part because when it comes to lender-placed insurance, mortgage market participants today are increasingly focused on being proactive about what could be the next area of concern with legislators, said Jeff Kunz, director of operations at MDA Lending Solutions.
Among other things, there has been sensitivity about pricing when insurance is lender-placed, particularly in situations involving distressed borrowers. As a result some other lender-placed issues such as the levee question “are not the focal point anymore,” said Kunz, whose company provides flood determination and monitoring services.
But while it may be less noticed, the levee issue is still out there and there does not appear to be an easy solution to it, Kunz said in an interview with this publication.
There is concern that the additional insurance that would be required for places like New Orleans if decertification were to occur would raise the cost of living due to the additional insurance burden.
In general, “people are sensitive to consumer issues” and this concern likely has contributed to the fact that decertification has not occurred, he said.
Flood insurance, which lenders are bound by law to ensure borrowers have even if the borrowers themselves do not place it, is more expensive than some other forms of coverage, Kunz said. Flooding historically has resulted in relatively high collateral loss, which contributes to the high cost of insurance, he said, noting that the cost would be even higher in the government did not help subsidize it.
And while decertification may be a problem in terms of cost, there also is a downside to not decertifying levees on federal maps that are relied upon to identify special flood hazard areas and ensure insurance is available, Kunz noted. In the event of another instance of severe flooding in an area a levee failed to protect there could be an outcry from people who will ask why decertification didn’t occur, he said.
“It could be a vicious circle,” said Kunz.
The last 12 months have been a relatively mild time for flooding but as the winter ends and snow melts the United States could see more of it, starting in the North and moving South, he said.
While there was some flooding from the tsunami related to Japan’s tragic earthquake, other risks from that natural disaster have largely overshadowed it. Eventually there could be some implications for flood maps as a result of it but these would come after the damage from it has been addressed. Hawaii has tsunamis mapped, Kunz said. According to Realpoint, Hawaii did see some flooding from Japan’s tsunami, but it was relatively minor and confined to certain coastal areas.
While there has been difficulty maintaining government funding for the federal flood insurance program, funding at press time was in place at least for the time being. The concern, however, remains a long-term issue, Kunz said.
