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
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Property Insurance Water Quality Lower Auto Registration/Tag Fees No New Taxes & Jobs, Jobs, Jobs… Pension Reform
2013 Legislative Session By 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-12 The 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 Changing Subsidies 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 sustainable 2. Be actuarially responsible 3. 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-12 Myth: 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
Policyholder Subsidies NFIP Policyholders under Section 205 (data as of 12/31/2012)
25% Increase until true risk premium (pre FIRM non-primary residence, business, Severe Repetitive Loss); 2
Not affected by 205 (already actuarially rated); 4480669; 81%
Subsidy maintained until sold to new owner, policy lapse, etc. (pre-FIRM primary residence); 578312; 10%
Other not immediately incerased (pre-FIRM condos, multifamily properties, non-pre-FIRM SRL); 2440
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)
Tax assessment (Building only & total)
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 1610 HR 3370 S 1846 Homeowner Flood Insurance Affordability Act Four Year Delayâ€Ś
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 â€˘ Determine if property is subsidized â€˘ Have elevation certificate completed â€˘ Appeal the flood risk finding if appropriate
Mitigation Options • Property Acquisition & Structure Demolition • Structure Elevation • Mitigation Reconstruction
Flood Insurance State 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
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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.