Legislation, Pending Home Sales, Real Estate News

Flood Insurance At Risk In Latest Tea Party Showdown

November 11, 2011 by · Leave a Comment 

Peanuts_LucyFootball_SteveCardwellWe are lucky, here in Northwest Indiana, that most of us have property where we are not required to buy flood insurance. As we have written before on this site, some areas that experienced flooding in the past are now less susceptible,  thanks to levee projects and other Federally funded flood controls.

FEMA, the Federal Emergency Management Agency, who determines areas might be in flood danger, has even changed it’s Flood Insurance Rate Maps in the NWI region, relaxing and removing some homes from the designation. Within the last 10 years local communities which have experienced floods include:

  • Munster Indiana,
  • Highland Indiana
  • Hammond, Indiana
  • Griffith, Indiana
  • Lake Station, Indiana
  • Unincorporated Calumet Township
  • Gary Indiana
  • Hobart Indiana

Ogden Dunes, Indiana and Beverly Shores, Indiana have experienced erosion from Lake Michigan storms and rising water levels. Chesterton, Indiana recently had a tornado. In short, the infrastructure improvements built to handle Spring and Summer floods have reduced our collective exposure to risk on the Little Cal, but we still run risk of natural disasters. With infrastructure improvements we have less risk, greater confidence and safety.  However, we can never be so confident we can just abandon such an important program.

But it is not so simple in Washington. The government backed National Flood Insurance Program (NFIP) has long been a sort of political football. The way appropriation bills are packaged together and voted upon, this FEMA program is the red-headed-stepchild of Congressional legislation. It  has a history of lukewarm on-again-off-again support and  funding in Congress. For years it has been a patchwork of stop gap funding measures instead of an ongoing and stable program. And after the monumental showdown over the debt ceiling, at the end of September, NFIP is one of those remaining loose ends with one foot on the banana peel.  A Sept. 30 BUSINESS WEEK article suggested that a compromise was near, but that compromise only gave the program another month; and time is up once more.

Property owners pay for flood insurance. This is not a government hand-out. And the rate maps, which are frequently updated, because waterways do change over time; selecting who is required and who excluded from the requirement is always a hot topic. Since the government only underwrites the program, NFIP is supposed to be self-financed without any long-term taxpayer infusion. Only when extraordinary disasters, like Hurricane Irene occur,  do government reserves become necessary.

You might ask “why are pHurricane_Ike_CalumetFlood_2008_byLeo Skinnereople allowed to have a home in a flood plane at all?” and that question is part of the controversy. With global climate change, these questions will always be somewhat hypothetical. There will be owners paying for insurance who will never collect on a loss. And others, such as we recently saw with Hurricane Irene who were badly flooded while never expecting they were in danger.  I found anecdotes from owners complaining of uncertainty from changing map boundaries, 300% increases in premiums; others asking”…why should I be forced to pay for this?  I have never been flooded.” And so, like any insurance it is risk management. Your mileage will vary. There is no guarantees how it will turn out for any single property at the end of the day.

REALTOR’s would like to see better stability in the program rather than the current series of short term extensions. Ron Phipps, the National Association of  Realtor’s President put it this way:

“As the leading advocate for homeownership and housing issues, NAR strongly supports the NFIP and believes that a 5-year extension of the program’s authority to issue flood insurance is essential to a properly functioning real estate market.”

Other NAR studies estimate that  about 1,300 property transactions PER DAY will be shelved during the time of any NFIP lapse. Any real estate deal involving a mortgage (most home purchases are bought using financing)  cannot be closed without being insured. Purely private flood insurance is not available. Since Federal backing underwrites this entire insurance sector ALL the carriers provide similar coverage and rates,   According to NAR, this is the 3rd time this program has been interrupted since 2008. And the REALTOR’s believe that the public should be just as concerned about how the 9% or so of the nation’s NFIP affected homeowners who are at risk  due to partisan politics and Congressional brinksmanship.

As the budget impasse keeps Congress on a slow boil, with  politicians grumbling about eliminating not just Federal programs but entire  agencies from the US organizational chart; we need to think about those millions of homeowners who may be left without insurance.  While Northwest Indiana is not as affected as some other regions of the US, we DO have homes in flood zones. And we HAVE had floods in the past. NAR, speaking out on behalf of these owners is not asking for a hand-out. These homeowners pay dearly for their coverage and only ask for their programs’ enabling legislation to have a little stability and continuity. And personally, as a REALTOR who works with recreational and residential properties, I have witnessed first-hand the frustration and powerlessness that buyers feel when they are left hanging. It is important to have ALL our property owners able to have a level playing field, with the ability to get the insurance coverage they need. And it is irresponsible for Congress to plug up vital programs in order to flaunt a political agenda.

Please share your comments below.  Relate your  disaster tales and tell us your experiences with FEMA and NFIP.  If you feel strongly, share your views with your Congressmen.

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Steve Cardwell

Steve Cardwell is an Indiana Realtor working with residential buyers and sellers throughout Northwest Indiana. He likes to stay current on the housing market by analyzing real estate trends with a focus on the towns of Highland and Munster Indiana. His broker affiliation is Red Key Realty Leaders in St John, Indiana. Learn more about Steve and visit www.SteveCardwell.com.

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