With a three-month extension of the National Flood Insurance Program set to expire in less than a month, the real estate industry on Tuesday cheered the passage of new House legislation that would reauthorize and reform the ailing 49-year-old insurance plan.
Sponsored by Wisconsin Rep. Sean Duffy, the “21st Century Flood Reform Act” passed 237-189 despite opposition from Democrats and officials on both sides of the aisle representing coastal districts, who claim premiums on high-risk properties could skyrocket. Real estate trade associations, however, unequivocally came out in support of the bill, citing significant property sales declines during periods in which the federal program has expired.
A competing bill in the Senate, which would pause interest fees that the program pays on its debt, is expected to be introduced before the program is slated to expire on December 8.
“Realtors know first-hand what happens when the NFIP expires, and it isn’t good for consumers, businesses or our communities,” said National Association of Realtors President Elizabeth Mendenhall, who has long made reauthorization a priority. “We appreciate the leadership that members of Congress have shown passing sound reforms, which will strengthen the program, protect property owners and deliver good results for taxpayers.”
Under the “21st Century Flood Reform Act,” the program would be reauthorized for five years while receiving a $1 billion infusion to elevate, buy out or mitigate the riskiest of an estimated 5 million policyholders. Premiums, which on average cost homeowners $650 annually but can spin out of control in coastal regions, would be capped at $10,000, while new mapping technology would help reduce rates by calculating the true risk of flooding farther inland.
Pricing hurdles to the private flood insurance market, which often offers better coverage for less money, would be removed, and the process of filing claims would be streamlined, according to new rules under the bill. Penalties for repeatedly flooded properties, which account for 2 percent of policies but 25 percent of claim payments, would also be enacted.
On Tuesday, the Mortgage Bankers Association lauded a provision in the bill that would exempt some properties in hazardous flood zones, including multi-family homes, from mandatory purchasing requirements frequently triggered when owners renew or extend loans.
“This legislation contains important provisions related to the clarification and expansion of the private flood insurance market,” said David Stevens, president and CEO of the Mortgage Bankers Association. “Finally, we are glad to see the exemption for large commercial and certain multifamily properties from the mandatory purchase requirements of the NFIP, effective January 2019. MBA now urges the Senate to finalize its ongoing flood insurance negotiations and act before the December 8th expiration of the temporary NFIP extension.”
The legislation was drafted prior to devastating hurricanes in Texas, Florida and Puerto Rico that caused more than $200 billion in property damage through September, according to Moody’s Analytics. Coupled with hurricanes from previous seasons, new claims accumulated this year were set to exceed the program’s $30 billion borrowing cap until Congress agreed to forgive $16 billion in debt last month, according to a Politico report.
Last week, the program borrowed $6.1 billion, raising its debt to more than $20.5 billion.
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