Climate Change gets real for the Chamber of Commerce.
Many older homes in flood zones have long benefited from a big subsidy that kept flood insurance rates very low. Starting next month, those homeowners will typically see annual rates jump more than 20 percent, including a fee for a new reserve fund. A late payment could cost them their subsidy immediately.
If the owner sells the home, the buyer will lose the subsidy. That could, as in one scenario, raise a premium that had been $1,400 a year to $9,500.
Travis wasn’t hopeful of a congressional reprieve in the next couple of weeks.
“Have I demoralized everyone here?” he asked.
Concern about rising flood insurance rates — triggered by the Biggert-Waters Act of 2012 — has been percolating for months. Now, just weeks before the law’s main provisions take effect, real estate agents and communities from Apollo Beach to Treasure Island are galvanizing, worried about falling property values, busted real estate sales and a crippling effect on the broader economy.
“This is a major change,” said Patty Latshaw of St. Petersburg-based Wright National Flood Insurance Co., the biggest writer of federal flood insurance in the country. “I’m just glad to see people are realizing what is going on and asking questions and becoming involved. Finally.”
For Cristy and Fred Assidy, reality hit too late.
After 15 years in their “starter home” in St. Petersburg’s Shore Acres, the couple was excited recently to close on a new home in Riviera Bay near Weedon Island.
Then came a shocker.
During this first year, their premium through the National Flood Insurance Program is a doable $1,700; next year it jumps to $17,000. For a house they bought for $205,000.
“This is going to devastate the real estate market here just when it’s barely making a comeback,” Cristy Assidy said. “People are going to leave the state in mass exodus.”
And not just in traditional hurricane zones…
NORTH POWNAL, VT – Hurricanes Katrina, Irene, Lee and Sandy have wiped out FEMA financially. The agency is broke and it’s looking to get out of the red by upping flood insurance premiums on millions of homeowners across the country. Thousands of those homeowners are in the Capital Region and they’ve recently been receiving their premium bills for next year.
Those who are required to have the insurance are seeing their bills double this year compared to last and then there are those that were never in a flood zone who are now being added to one under new flood maps that FEMA has drawn up for most local communities. Judy Greenwalt has lived in front of Witches Brook in North Pownal, Vermont for 30 years and because it is only about 30 yards away from her home, she’s in a designated flood zone. She pays annually for flood insurance but this year when her bill came, she was shocked, “It went from $1623 to $4,389…I thought I was going to have a heart attack, I don’t have that kind of money, nobody has that kind of money to fork over all at once and yea, you have escrow in your mortgage but no one has that amount in escrow,” she tells CBS6.
Over the past several years, FEMA has shelled out way more money than it has taken in from Flood Insurance premiums and now as the agency looks to build back up the pot, it is redrawing flood maps across the country. Many folks like Greenwalt are having their flood designations change. She went from being in a moderate risk area to a high risk area despite the fact she has never had a flooding problem, “this is what I call extortion, these rates,” she says.
Insurance companies don’t have the option to be deniers. FEMA tried to ignore it and has gone broke, and we’re just getting started. That Florida couple will be fortunate if their home lasts 5 years, being right on the bay. We live in interesting times.
Libertarians are complicated.
On Nov. 5, 2012, Ron Paul was outspoken about the moral hazard of government subsidizing flood insurance.
http://www.youtube.com/watch?v=4qThTg_vOn4
However, Paul was one of only 18 Representatives who voted against the Flood Insurance Reform which was signed into law on May 17, 2012.
https://www.govtrack.us/congress/votes/112-2012/h262
Because it kept FEMA’s morally-hazardous insurance in place instead of just repealing it, I’m sure.
Obamacare pretty much crowds out all reporting bandwidth for other legislation. Reading the actual bill is painful. This overview implies that many primary residences will get preferential treatment.
According to this summary subsidies will be phased out over a 4 year period for properties built Pre-FIRM (prior to April 3, 1978) and meet at least one of the following criteria:
– Residential property that is not a primary residence
– Severe repetitive loss properties
– Property with cumulative losses exceeding Fair Market Value
– Any commercial property
– New policies, lapsed policies, policies for newly purchased properties
Subsidies for properties built Post-FIRM (after April 3, 1978) and are not built to the current Base Flood Elevation (BFE) are phased out over a 5 year period.
– Policies that were not in a flood zone on the previous FIRM Maps and are now in a flood zone are eligible for PRP Extension. On October 1, 2013, these policies will phase out over 5 years.
http://www.co.jackson.ms.us/img/planning/JacksonCoBG12-Powerpoint.pdf
Real estate agents were ‘hard selling’ all those ARM’s and other ‘creative’ loans that influenced people to make the bad decisions made during the late 90’s to 2008 period. There wasn’t one RE agent I talked to, during that time, that didn’t try to inform me about the ‘benefits’ of an ARM loan. These guys were a catalyst in the financial melt down; I have little sympathy for them. No doubt, as I write this, they’re putting out their ‘never been a better time to buy a home’ junk in all these towns that will be affected by the subsidies cut.
Insurance is a collective cooperation of home owners to share the risk of damage or total loss. Getting the tax payer to pay for reckless positioning of houses just opens the door to abuse. The local state who zoned the area for building should shoulder some the burden for creating the high risk. Nothing like having to pay to sharpen the mind.
Its an old story. Developers and governments allowed reckless development in inappropriate areas. Now, combined with GW, we are seeing amplified negative results.
Are you paying attention, Mr. Burton?
http://www.huffingtonpost.com/2012/11/12/hurricane-sandy-damage_n_2114525.html
We build inappropriate houses in inappropriate places, subsidized insurance only encourages this. The end of the subsidy was an inevitability, and in many ways a good thing.
But people need time to adjust. A longer phase in was probably warranted.