WASHINGTON — Florida’s battered housing market will get some temporary relief if the U.S. House, as expected, approves a 60-day extension today of the National Flood Insurance Program before it expires on Thursday.
But Congress is also considering broader changes that will raise rates and phase out coverage for some businesses and homeowners, especially for second homes or vacation houses. Here’s how today’s action and a revamp would impact the state:
Q: How will home sales be affected by this extension?
A: Flood insurance is essential to complete home purchases in much of low-lying Florida. You can’t get a federally backed mortgage in flood plains and some waterfront areas without coverage. The flood program has lapsed or brushed against an expiration date several times in recent years, complicating and sometimes delaying real estate closings that come around the same time.
“The first time, it caught everybody by surprise. But the industry has learned to be pro-active. I just have my clients go out and buy insurance now, even if they don’t close for another week or 10 days,” said Charles Kiesel, a mortgage lender in Cooper City. “We’ve learned how dumb our government is, how it runs right up to the deadline.”
The Senate approved a 60-day extension last week, and Republicans and Democrats agreed to debate a more substantial bill in June that would overhaul the program and continue it for five years. However, the 60-day extension comes with one significant change: subsidized coverage for second homes or vacation homes will be phased out over four years, raising rates for those who buy them.
Q: How much more will that cost buyers?
A: The cost of flood coverage varies widely, but the average is about $570 a year. Subsidized rates apply to about 20 percent of those covered and to houses built before flood-zone maps were issued in the mid-1970s. Subsidies cover up to 65 percent of the premium.
So phasing out subsidies will add to the cost of buying vacation homes, but probably not enough to discourage many buyers. Kiesel said, “Somebody buying a house for half a million dollars in Florida isn’t going to worry too much about paying another $40 or $50 a month for flood insurance.”
Q: What kind of changes will come if Congress passes the five-year bill?
A: The House bill, passed last year, differs from the Senate’s version to be considered in June, but both would phase out subsidized coverage for commercial buildings and homes that have been frequently flooded.
Rates would be set more in line with the risk of flooding. The legislation would allow the Federal Emergency Management Agency to buy “re-insurance” from private companies to back up the program. And it would allow the agency to explore selling “catastrophe bonds” to set up a reserve fund to cover the cost of massive disasters.
Q: Will that hike premiums?
A: Premiums already are due to go up by 5 percent this fall and may gradually increase by as much as 20 percent in higher-risk areas. Phasing out subsidies would mean even higher costs for affected businesses and homeowners.
“For those currently paying subsidized rates, eventually you might pay about double the amount,” said R.J. Lehmann, an insurance expert at The Heartland institute, a free-market think tank in Washington.
Q: What’s the hang-up in Congress?
A: The big issue is the program’s $18 billion debt, with no way to pay it back. The program hemorrhaged money after a batch of storms struck Florida and other Gulf Coast states in 2004 and 2005, culminating in Hurricane Katrina.
Some in Congress want to cancel the debt, but many others call that irresponsible and say the program must at least pay its ongoing costs based on actuarial risk, much like private insurance.
“If we were to have a sound and financially stable program, it has to be able pay big claims without going back to the treasury,” Lehmann said.
Q: Who is pushing to save the program, and who wants to change it?
A: A leading critic is Sen. Tom Coburn, R-Okla., who threatened to block the 60-day extension unless it included a provision to end subsidized coverage of vacation homes. Many Republicans in Congress say the program distorts the housing and insurance markets, and some environmental groups say it encourages damaging development in flood-prone places.
But most Florida members are struggling to preserve it, knowing that Floridians hold 2.1 million of the nation’s 5.6 million policies. Sen. Bill Nelson, D-Fla., who faces a tough re-election campaign, has been especially eager to renew it.
“Sen. Coburn was going to hold up a short-term extension of the entire flood-insurance program unless he got changes to second-home coverage,” said Nelson spokesman Dan McLaughlin. Within 60 days, he said, “we’ll be debating a long-term plan and address any needed changes then.”
