Many mortgage professionals who are lenders for residential properties that are near the coast or near water may see new regulations popping up pertaining to flood insurance coverage in the next year. The Federal Emergency Management Agency has just proposed a new regulation that states that property owners that live in areas prone to flooding must have their premiums for insurance set aside in an escrow account. This satisfies the requirement that borrowers from lenders have, and will pay, their flood insurance. This also ensures that the homeowner’s will pay their bills on time.
The NFIP (National Flood Insurance Policy) that is regulated through FEMA has been under some financial stress in the last decade, suffering huge losses due to hurricanes Katrina and Sandy. The losses from just those two storms add up to about $14 billion dollars worth of losses for the program.
With these new regulations, it might mean something good for homeowners. It could mean that some policyholders may not have to carry the expensive coverage that is currently required for some parts of their properties. An example of this could be a garage that is located in a specialized flood hazard area. If it is detached from their structure and doesn’t serve as a residence, they won’t have to pay the expensive fees for covering it.
As for the requirement to set aside money in an escrow account, policyholders and lenders can see this change after January 1st, 2016. The NFIP has been under scrutiny since 2012 after the Biggert-Waters Act led to very large hikes in the cost of premiums. These costs increased up to 1,000 percent, leaving their consumers less than impressed and quite angry. This Act was put into fruition to help stabilize the drowning National Flood Insurance Program, but instead, it made consumers angry and hindered them even further.
Due to the backlash among the insurance providers that represent the NFIP and policyholders living in flood-prone areas, the Congress rolled back these steep increases in cost so that they would be more gradual and less intense and sudden.
Some of the areas that were hit by Superstorm Sandy, including the five boroughs of the New York area, have began to take preventative measures in order to try and receive discounts from FEMA pertaining to premiums. It is vital for communities to take this kind of action to prevent damage from occurring because firstly, many homes and businesses will be saved in the long run, and two, it will cost less money to restore and prices for premiums will be slashed.
Some communities may even be able to receive a 45% discount in the cost of premiums if they go above and beyond the minimum requirements for the National Flood Insurance Program. A community in one of the five boroughs has even requested a grant to build a higher barrier between the coast and the homes, and if it is high enough, they are hoping the FEMA will revise the flood map for that area and will cut down the price of premiums.
If you build sufficient protection, then FEMA will definitely lower the flood insurance rates for policyholders in that area. The neighborhood of Breezy Point is an ideal candidate for the Community Rating system, but there are many other neighborhoods in the same vicinity that probably won’t be eligible to receive any kind of discounts because they can’t take any preventative measures – either they don’t have the money, or it is highly improbable that they will be able to renovate every single home to meet the resilience standards for FEMA. This is a pre-requisite for joining the program; so many neighborhoods around Breezy Point don’t have the option of having flood insurance at all through the NFIP.
FEMA will begin making visits to many communities that are located in flood-prone areas throughout the United States beginning now and continuing through May of 2015. As long as these communities meet the resilience standards, then they can expect to see lower premium costs. Now if the communities go beyond what is actually required, they may see a slash in the price. This could include anything from building a barrier as one community has done, sandbagging the coast, or even raising homes above the flood zone level.
For a community to be fully compliant with the flood proofing standards (which were designed for detached single family homes that weren’t along the coastline), most property owners would have to raise their floors so that they were located above the flood zone. The truth of the matter is, that may be nearly impossible for many homeowners; both physically and monetarily.
For more information on the National Flood Insurance Program, its policies, or any other information regarding the Federal Emergency Management Agency, you can visit their websites for more in depth explanations.