Flood Insurance Reform is Law, Now What?

Charleston Trident Association of REALTORS®The voice of Lowcountry real estate for more than 100 years

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NATIONAL FLOOD INSURANCE PROGRAM

Legislative UpdateApril 2014

Ryan CastleGovernment Affairs Director

Charleston Trident Association of REALTORS®




What’s happened?July 2012 – Biggert Waters (BW) passes

May 2013 – FEMA announces BW will be retroactive

June 2013 – NAR starts working on fix to flood insurance bill; Greenville, SC REALTOR® Donna Smith heads up NAR PAG on flood insurance

October 2013 – Rate increases start taking effect for Pre-FIRM properties

January 2014 – Senate passes a 4 year delay

February 2014 – House passes BW overhaul bill; Senate follows suit

March 2014 – President signs BW overhaul bill




This is NOT a DELAY!

This is a REFORM of Biggert-Waters

Subject to laws Congress passes as the same with all tax rates and other federal laws affecting real estate (Capital Gains example)

Still use SCR’s Flood Insurance Property Disclosure Form




Buying a Pre-FIRM home/propertySec. 205-Sale/New Policy Trigger

Below full risk rate

Original BWProperty moved to full risk rate when triggered by a property/new policy purchase – meaning at point of sale full risk rate was price

New lawRepeals Sec. 205-Sale/New Policy Trigger (including the sale of second home or business)

Returns to allowing the new owner to assume the old policy at the current rate (i.e. policy stays with property, not owner)




Pre-FIRM property WILL lose their subsidy immediately if the property allows their policy to lapse (for any

reason or any length of time) and the property is still covered by the

mandatory purchase requirement.




Annual Premium Increases for owner-occupied Pre-FIRM properties

FEMA will calculate Subsidized Rate the way they always have calculated it yearly.

Subsidized rate = (Annual NFIP Expenses – Revenue from actuarial policyholders)/#Subsidized Policies

From that determination, Subsidized Rates will have a minimum increase and a maximum increase.

Second Home/Business: 25% increases until reach full risk (same as current law)

Prior to Biggert Waters

Capped Subsidized Rate premium increases at 10% per rate class

no cap per property

No Minimum Increase

Biggert Waters

Capped Subsidized Rate premium increase at 20% per rate class

No cap per individual property

No minimum increase

Post Biggert Waters

Caps Subsidized Rate premium increase at 15% per rate class

18% cap per individual property

5% minimum increase




Grandfathered PropertiesSec. 207-Remapping Trigger

Grandfathered: Post-firm homes that were built to compliance at the time it was built but laws have changed since.

Original BW5 year phase out of grandfathered rates triggered by when new flood maps are adopted locally

Expected in coastal SC late 2014 to early 2015

New lawRepeals remapping and phase out trigger ANDRestores Grandfathered properties to how they were treated prior to BW

Stays in flood zone it was built inAs flood zone rates increase rate will increase as always has happened




1% of Property’s Value“…strive to minimize the number of policies with annual premiums that exceed one percent of the total coverage

provided by the policy.”

For example, a house at $200,000 should not have a premium over $2,000.

However, this language is NOT a requirement; FEMA must only “strive” to do this.

Details will be in FEMA’s guidance on this issue




Policy Assessmentfor all properties that are not paying full risk rate

$25 assessment on all NFIP primary homes; $250 on the businesses and second homes in the NFIP

The funds will be deposited in the NFIP reserve account created by Biggert-Waters to build a cushion for future catastrophic losses.




RefundsMust occur within 16 months

REFUNDS APPLY TO: o Policyholders in high-risk areas who were required to pay their full-risk rate after purchasing a new flood insurance policy on or after July 6, 2012.

REFUNDS DO NOT APPLY TO: o Policyholders paying the 25 percent annual rate increases, as required by Congress in BW-12, for a Pre-FIRM subsidized non-primary residence, business, Severe Repetitive Loss property, or building that was substantially damaged or improved.

o Policyholders whose full-risk premium is less than the Pre-FIRM subsidized premium, or who were not overcharged according to any retroactive revisions to the Pre-FIRM subsidized rates required by the new law.




Installment Payments for Premiums The new law will allow monthly installment payments for premiums at the option of the consumer.

Deductibles Under BW, pre-FIRM deductibles for risks with building coverage of more than $100,000 were to increase from $1,500 to $2,000. For similar post-FIRM risks, the deductibles were to increase from $1,000 to $1,250.

These changes remain, but the new law also creates an optional deductible of $10,000 for residential properties; previously there was a $5,000 deductible cap. If chosen, a disclosure indicating that the policyholder is responsible for the out-of-pocket losses must be included with the policy.

Deductibles, as always, though is more of a lender decision as to what they’ll allow the borrower to have as a deductible.




Home Improvement Fairness Biggert-Waters phased-out subsidies for pre-FIRM properties that were “substantially improved”. While historically the threshold to cross “substantially improved” was 50 percent of Fair Market Value (FMV), Biggert-Waters changed this to 30 percent FMV. The new law changes the threshold back to 50 percent FMV.

Reimbursement for Map Appeals The new law allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders who successfully appeal a map determination. Biggert-Waters provided FEMA the authority to reimburse homeowners for successful appeals of map findings, but Congress has never appropriated funding for this purpose.

Flood Insurance Advocate The law establishes a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. The Flood Insurance Advocate will be responsible for assisting property owners through the map appeals process, and improve outreach and coordination with local officials, community leaders, and Congress.




TAKEAWAYSNo more Point of Sale flood insurance premium hikesGrandfathered rates will stay and not be phased out with new mapsSome properties will still have high flood insurance costsBe patient as FEMA takes time to issue guidance; pre-FIRM assumable policies & refunds highest priority – could take 6 months to implementStill use SCR’s Flood Insurance Disclosure Form




More Informationwww.CharlestonRealtors.com/FloodInsurance

Ryan CastleGovernment Affairs DirectorCharleston Trident Association of [email protected]

@ryanfcastle

www.ryanfcastle.com

mailto:[email protected]

Flood Insurance Reform is Law, Now What?

Real Estate

Transcript of Flood Insurance Reform is Law, Now What?