Flood Insurance

The National Association of REALTORS® said this week that it will continue to press Congress for speedy action to renew authority for the Federal Emergency Management Agency to issue flood insurance under the National Flood Insurance Program that expired March 28. Congress is on its spring recess and will return April 12.

FEMA Offers Discount for Insurance Requirement

The Federal Emergency Management Agency is offering two years of eligibility for the program’s Preferred Risk Policy, the cheapest option, to home owners and small businesses whose properties are in a newly-designated special flood hazard area.

The deal will be available after the redrawn maps take effect, in most cases this fall or next winter. The preferred risk plan discounts the full rate by 75 percent to 80 percent.

FEMA, which has been modernizing the maps for the last six years, has run into considerable resistance from both citizens and legislators who think its changes are wrong or unnecessary.

Source: The Associated Press, Jim Shur (05/20/2010)

Flood insurance is required by law for home sales mortgages on properties located in the 100-year floodplain areas, which are left unprotected by this lack of congressional action. Until Congress renews this program, worthy buyers will be left without access to mortgages,” says NAR President Vicki Cox Golder. “In addition, given the many challenges financial and real estate markets are facing, now is not the time to create another, but avoidable, obstacle to real estate transactions.”

Golder cited the recent heavy floods in Rhode Island and the near miss in North Dakota last week when the Red River crested just below flood stage. She also said that home buyers and property homeowners in those states and others such as Florida still need adequate protection from flood damages.

Floods and flash floods happen in all 50 states and are the No. 1 natural disaster in the U.S., but most property casualty homeowners insurance policies do not cover flooding. According to FEMA, more than 5 million people currently hold flood insurance policies in more than 20,000 communities across the country. Since 1978, the NFIP has paid out $31.4 billion for flood insurance claims and related costs.

NAR praised the actions of Fannie Mae and Freddie Mac to temporarily accept mortgages on homes while flood insurance is not available. Both announced last week that they will continue to purchase loans secured by property in special flood hazard areas that do not have an active flood insurance policy as long as certain conditions are met. NAR also cited FHA efforts to maintain public confidence in the lending market during this time.

The Fannie Mae policy applies to mortgage loans closed, so long as Congress reauthorizes the program on or before April 20, 2010, and that the program is retroactive to March 29, 2010, the day after the present expiration.

Until evidence of active flood insurance is obtained, a lender may deliver a mortgage loan to Fannie Mae on the condition that the borrower can provide acceptable evidence of a completed application for flood insurance and a copy of a check, or the final HUD-1 Settlement Statement reflecting payment of the initial premium, or the assignment of an existing flood insurance policy from the property seller to the purchaser.

Freddie Mac has provided similar guidance.

“As soon as they return, we expect Congress to act quickly to correct this problem,” Golder said. Congress is expected to renew the FEMA authority eventually, but until Congress acts, FEMA may not issue new or renewal flood insurance policies to property owners.

Source: NAR

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