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REALTORS® Applaud Passage of Flood Insurance Affordability Act

The REALTOR® Association is celebrating a major public policy victory following a vote by the U.S. Senate on March 13 to pass the Homeowner Flood Insurance Affordability Act (HR 3370), as previously amended by the U.S. House of Representatives.  As passed, the legislation repeals the Federal Emergency Management Agency’s (FEMA) authority to increase premium rates at the time of property sale or a new flood map is issued, and refunds excessive insurance premiums to those who bought a property before FEMA warned them of the rate increase.

Specifically, the bill repeals the phase-out of rate subsidies – that began October 1, 2013 -- for properties purchased following the passage of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW12).   It also restores lower insurance rates for older homes and commercial buildings that pre-date the implementation of flood maps (i.e. those built before December 31, 1974 or before the effective date of the initial Flood Insurance Rate Map published for a community) by repealing the phase-out of government-subsidized rates for grandfathered properties when new flood maps are issued.  NAR estimates that up to 40,000 home sales nationwide have been delayed or cancelled due to rate increases and confusion over flood insurance rates since BW12 was implemented last October.

Notably, FEMA will still be able to raise rates to address actual flood risks, but increases will be made more gradually. Rate increases will range from 5-15 percent per year on average, with a hard cap of 18 percent per year on newer properties and 25 percent for some older ones.  Additionally, the bill adds a small assessment on policies until everyone is paying full cost for flood insurance.

The bill provides a reasonable and balanced solution to address the dramatic flood insurance rate increases that were triggered last fall when reforms to the National Flood Insurance Program (NHIP) first took effect. In particular, the measure should help stabilize local real estate markets and ensure that both property owners and prospective buyers are treated equally, according to REALTORS®.  In a statement, National Association of REALTORS® President Steve Brown said “…NAR applauds this bill for the relief and protection it will bring to businesses and families nationwide, who are experiencing financial hardship because of extreme and sudden premium increases. We believe this legislation will bring relief to property owners by ensuring a slow and steady phase in of risk-based increases.” 

Relatedly, on the state level, the Massachusetts House has approved legislation (H3783) aimed at reducing the amount of flood insurance banks can require under mortgage laws. The bill, which was introduced by Massachusetts Attorney General Martha Coakley and has the support of the Massachusetts Association of REALTORS®, states that no mortgage lender may require a purchaser of residential property to buy flood insurance on the property at a coverage amount that exceeds the outstanding mortgage, that includes coverage for contents, or that includes a deductible less than $5,000.