Legislative/Flood Insurance Update

January 14, 2014

John Sebree

Legislative Session - Major Issues• $74 Billion State Budget

– Budget Shortfall for past several years• 2011 Session = $4 billion shortfall• 2012 Session = $2.3 billion shortfall• 2013 Session = $1.1 billion surplus• 2014 Session = $1.2 billion surplus

• Property Insurance• Water Quality• Lower Auto Registration/Tag Fees• No New Taxes & Jobs, Jobs, Jobs…• Pension Reform

2013 Legislative SessionBy the Numbers

• 60 Number of Days in the Session• 1998 Number of Bills introduced• 286 Number of Bills that passed

Talking Points

• Sales Tax on Commercial Leases• Property Insurance• Housing Funding/Homelessness• Estoppel Fees• Water Quality

Federal issues…• Preserve Mission and Purpose of FHA Program• Preserve Homeownership Tax Policies• Restructure Fannie Mae & Freddie Mac and

Encourage the Return of Private Capital• As a result of Dodd Frank there is a 3% cap on

points and fees that can be charged at closing. We ask Members of Congress to Support HR 1077, the Consumer Mortgage Choice Act, to address this.

• Mortgage Debt Cancellation• Flood Insurance

BW-12The Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) requires changes to all major components of the program, including flood insurance, flood hazard mapping, grants, and the management of floodplains.

Many of the changes are designed to make the NFIP more financially stable, and ensure that flood insurance rates more accurately reflect the real risk of flooding.

The changes will be phased in over time, beginning this year.

BW-12: What’s ChangingSubsidies to be phased out

Non-primary residences Business properties Severe repetitive loss properties (1-4 residences), and

properties where claims payments exceed fair market value

New policies to be issued at full-risk rates After the sale/purchase of a property After a lapse in insurance coverage After substantial damage/improvement For properties uninsured as of BW-12 enactment

Grandfathered rates planned to be phased out over 5 years

Realtors believe in key principles about NFIP

NFIP should:

1. Be long-term sustainable2. Be actuarially responsible3. Protect homes and business owners

who have “played by the rules”- Built to code- Maintained insurance- Not had repetitive losses

Property Owner Concerns• Decline in list and sales prices

• Property values decline

• Increase in Foreclosures

• Local government revenues decline

• Local governments will have to replace losses with other revenues

Lock-in Effect• BW-12 is the insurance version of the

Save Our Homes “lock-in.”• During the 2002-2006 real estate boom,

owners became locked into their homes. They couldn’t afford property taxes on a new home if they moved. Taxes can’t be amortized like a mortgage, and neither can insurance premiums.

• Under BW-12, Owners cannot sell and buyers cannot afford to buy.

Myths of BW-12Myth: Only people who ignored building code or have had repetitive loss will be hurt.Reality: Individuals who have followed the law, maintained insurance and never been flooded will be hurt.

Myth: Only rich people will be hurt; these are vacation homes.Reality: Working class people will be hurt; these are primary residences and businesses.

Myth: A phase-in of higher rates makes loss of grandfathering manageable.Reality: When insurance goes from $600 to $29,000 per year, a 20% per year ($5,700) phase-in is still unaffordable.

NFIP Numbers

• 17.4 million households in US live in areas where flood insurance is mandatory

• 41% are low to moderate income owners• NFIP only has 5 million policies• Nearly 75% of new policies are dropped

in first five years

These policies are not Pre-FIRM subsidized

(already actuarially rated), 4,480,669 policies . They are not

affected by 205 but may see routine annual rate increases.

These pre-FIRM non-primary res-idences, business properties, and

Severe Repetitive Loss (SRL) properties

(252,851 policies) will see 25% increases until the true risk pre-

mium is reached.

These pre-FIRM primary residences (578,312 policies) will retain their subsidies until sold to new owner,

policy lapse , etc.

These properties, which include pre-FIRM condos and multifamily properties (244,085 policies) will

not see immediate subsidy re-moval.

NFIP Policyholders under Section 205 (data as of 12/31/2012)

81%

Policyholder Subsidies

5%

10%

4%

Sample Flood Insurance Disclosure Statement

Your mortgage lender [may] [will] require you to purchase flood insurance in connection with your purchase of this property. The National Flood Insurance Program provides for the availability of flood insurance but also establishes flood insurance policy premiums based on the risk of flooding in the area where properties are located. Due to recent amendments to federal law governing the NFIP those premiums are increasing, and in some cases will rise by a substantial amount over the premiums previously charged for flood insurance for the property. As a result, you should not rely on the premiums paid for flood insurance on this property previously as an indication of the premiums that will apply after you complete your purchase. In considering your purchase of this property you should consult with one or more carriers of flood insurance for a better understanding of flood insurance coverage, the premiums that are likely to be required to purchase such insurance and any available information about how those premiums may increase in the future.

Flood Rate Questionnaire

• Source of Rate (Company/Agent)• Listing price• Tax assessment (Building only &

total)• Address• Elevation• Year built• Flood zone

Biggert Waters Mortgagee Changes

• Permits a lender to accept non-NFIP flood policy to satisfy mandatory purchase requirements

• Requires lender to create escrow accounts for payment of flood premiums

• Authorizes FEMA to accept installment payments for non-escrowed premiums

Lawsuit

“We are supporting Mississippi in their lawsuit against FEMA because the NFIP rate hike will not only hurt Florida families but will devastate our real estate market. President Obama should use every tool possible to help Florida families and we urge him to act immediately.”

Governor Rick Scott

"Floridians are facing outrageous, unaffordable flood insurance premiums, and we support all efforts to protect policyholders from these devastating insurance rates.”

Attorney General Pam Bondi

Congressional Action

S 1610HR 3370S 1846

Homeowner Flood Insurance Affordability Act

Four Year Delay…

Recommendations to FEMA & Congress

• Require FEMA give homeowners notice that they have deductible options up to $5,000.

• Expand deductible options above $5,000.• Loan versus Cash Transactions

– Loan closing w/ Mortgage = No waiting period for policy to go into effect

– Cash Transaction = 30 day wait

Recommendations to Property Owners

• Determine if property is subsidized

• Have elevation certificate completed

• Appeal the flood risk finding if appropriate

Mitigation Options

• Property Acquisition & Structure Demolition

• Structure Elevation

• Mitigation Reconstruction

Flood InsuranceState Solutions

• Request Florida Division of Emergency Management (DEM) quantify the number of affected homes and businesses by county and by community.

• DEM clarify the re-mapping process for each community in the state and put the preliminary maps online.

• Determine statutory and regulatory hurdles that hinder the private insurance industry from writing this risk.

Claims Stats – Florida v Louisiana• Flood Insurance paid by Florida property owners

since 1978 = $20 billion• Total Flood claims paid to Florida policyholders since

1978 = $3.7 billion

• Approx. flood insurance premiums paid by Louisiana policyholders since 1978 = $4.4 billion

• Flood claims paid to Louisiana property owners since 1978 (mostly for Katrina) = $16+ billion

Of the nation’s top flood-claim events since 1978, only one, Hurricane Ivan, caused heavy flood damage in Florida. 

Issues for 2014 Session• Sales Tax on Commercial Leases• Estoppel Fees - three approaches

– One fee if owner current in assessments– Another fee if owner is delinquent– Third fee where there is a bulk buyer

• Water Quality• Housing Funding• Property Insurance Issues• Local Government Pensions• Flood Insurance

Your best investment…• Defeated the passage of Amendment 4 - Special elections

would have cost taxpayers $44.6 million to $83.4 million annually.  Amendment 4 could have resulted in local government legal costs of more than $1 billion annually –more than $135 per Florida household.

• Protecting the Mortgage Interest Deduction -  MID contributes nearly $113 million to Florida REALTORS® commissions each year.

• Cut Capital Gains - For every Realtor each year, that's an extra $3,825.

• Stopped Tax on Real Estate Commissions - Every year, the average REALTOR® saves $2,300.

Mark Your Calendar

Great American Realtor Day

Wednesday, March 19, 2014

• First-time Homebuyer Tax Credit – This added $5,280 to the average REALTORS® bottom line.

 • Defeated a proposed Transfer Tax - This tax would have

added $756.00 to the cost of the average home which would have been a lost sale for 1 out of every 8 members.

 • Defeated a Doc Stamp tax - This would have added $300 to

the closing costs of a $100,000 home. • Tangible Personal Property Exemption - Estimated savings of

$500 annually per member. • Preventing Banks in Real Estate - Saves the typical

REALTOR® $5,400 a year.

Thank You!