Homeowners across the country are seeing alarming increases to their flood insurance rates. Legislation to postpone the federally mandated flood insurance rate increases stalled due to the government shutdown and the new rates went into effect on Oct. 1.
Carolyn Miller, president of the Silicon Valley Association of REALTORS®, said many homeowners are worried because the new rates are exorbitant and they have no idea how they will pay the premiums. "REALTORS® put significant effort lobbying for delays in the implementation of new flood insurance rates, but nothing passed due to the government shutdown and the new rates went into effect without the delay. This has caused much anxiety among homeowners."
In July 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which reauthorized the National Flood Insurance Program (NFIP), but also made major changes to the insurance premiums many homeowners would pay. Under the new law, owners must pay the full-risk rate, the rate that accurately reflects the full risk of being flooded. Previously, the government subsidized the insurance of many homes or "grandfathered" them, so that the insurance rate was based on older flood maps showing lower risk.
With the new rate increases, some of the hardest hit areas are seeing rates of $10,000 per year or more, whereas before, the homeowners could have paid under $1,000 per year. Owners of properties that have had severe repetitive loss, or flood damage with claims higher than the fair market value of the home, will see a 25 percent per year increase until the home is at full-risk rate. Homes purchased after July 6, 2012, homes not insured as of that date, and homes whose insurance has lapsed, will be charged the full-risk rate.
For all other properties, including grandfathered policyholders and those now considered to be in higher risk zones because of new maps, rates will begin changing in late 2014. The NFIP will phase in full-risk rates over five years at a rate of 20 percent per year.
Part of the original law required that the Federal Emergency Management Agency (FEMA) report on the affordability of these reforms to Congress, so legislators could consider the financial impact of these reforms. Miller said the National Association of REALTORS® had requested Congress to delay the rate increases until after FEMA had completed its report. This legislation stalled due to the government shutdown.
"The purpose of the legislation was to ensure that all homes pay a rate that fairly reflected their risk of flooding," explained Miller.
With Congress back in session, REALTORS® hope there will be a move to retroactively delay the rate increases.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.