Charlie Glahe WIN Broomfield

FEMA overturns controversial flood insurance homeownership provision


Homeowners and prospective buyers in flood-prone regions of the U.S. can breathe more easily.

The U.S. Federal Emergency Management Agency recently announced the repeal of a provision contained in a 2012 flood insurance reform law that disallowed the assumption of an existing flood insurance policy during the course of a property transaction. In other words, property owners in places such as Louisiana and Florida who were having difficulty generating interest for the sale of their homes now stand to gain, as buyers will not be faced with the prospect of skyrocketing insurance costs when they move in.

According to The New Orleans Times-Picayune, David Miller, flood insurance administrator for FEMA, recently informed Sen. Mary Landrieu, D-La., that the agency has officially ceased the implementation of a particularly problematic provision contained in the 2012 Biggert-Waters Act as of May 1. That provision, which had cut off the taxpayer-subsidized premiums for new homes and businesses built prior to the release of updated FEMA maps, has been axed. It's cause for celebration for those already living in newer homes, who were facing rate increases of as much as 10 times what they previously paid, as well as prospective home buyers in the such communities, who are now presumably afforded many more options.

It doesn't mean flood risks are diminished in the areas that were targeted for FEMA's adjustments, and a home inspection is still essential to sniffing out any structural issues for buyers in the affected neighborhoods, but it's certainly a step toward progress for many of the country's regional real estate markets.

Stimulating stagnant markets 
The movement from FEMA is part of a domino effect set in motion by the Homeowner Flood Insurance Affordability Act, which was enacted March 21 by President Barack Obama after receiving bipartisan congressional support. Since then, Biggert-Waters mandates have been gradually phased out, but the official change makes some 1.1 million American properties - and 82,000 in Louisiana alone - incrementally more marketable.

"For many middle-class families, the single most important investment is their home," Landrieu said, noting that she also asked Miller about devising a system through which homeowners who were already paying the increased rates could be reimbursed. "Biggert-Waters threatened to eliminate the equity they had built and rob them of their most valuable asset. The elimination of the property sales penalty will restore confidence in the real estate market and allow up to 82,000 middle class families in Louisiana to continue living where they work to produce the goods and products necessary for continued economic growth."

In places like the New Orleans metro area and Florida markets such as greater Tampa and along the panhandle, property values have fallen significantly since the implementation of Biggert-Waters. Real estate professionals and homeowners alike have lamented that the premium provision, in particular, made many homes essentially impossible to sell given the increased costs of ownership any new buyers would face.

As a result, the movement to reform the Biggert-Waters Act - which was itself initially considered a measure of reform for the National Flood Insurance Program - gained steam from both sides of the political aisle and from representatives all across the country. The effects of Superstorm Sandy, which ravaged much of the Northeast in late 2012, provided a harsh reminder that flooding poses a threat to communities all over the country, not just along the Gulf of Mexico or other coastal regions. Reps. Bill Cassidy, D-La., and Michael Grimm, R-N.Y., among other longstanding proponents of Biggert-Waters repeal, expressed satisfaction despite the fact that they wished FEMA would have moved to act more quickly.

In any event, the altered rules for insurance premiums will surely boost home equity levels and stimulate buying activity in many previously downtrodden markets.