Good News and Bad News About Flood Insurance

On this Monday morning, there is both good news and bad news about flood insurance. The good news is that flood insurance is once again available. At the end of June, Congress extended the flood insurance program through September, so buyers should be able to complete the homebuying season without other interruptions. The bad news is that a lot more people are going to need flood insurance, starting next year.

In El Paso, our new maps were released yesterday and made public today. They cover much of the Upper Valley, identifying the area as a flood zone and requiring flood insurance. The new maps go into effect next year (mid 2011) but the window of time for appealing new flood zone status begins today and lasts through October 18. If your house is in a flood zone, you need to hire an engineer or a surveyor and they will show their findings to FEMA to appeal their decision to designate your property as being in a flood zone. From October 18 to December 18 FEMA will process all of the appeals, and then the final maps will become effective, probably in June of 2011.

Understanding the new flood zones is critical for homeowners and homebuyers alike. Just because a home currently is not in a flood zone does not mean that it is not going to be with the new maps, so it is important to take the time to find out as soon as possible, or else buyers may find themselves surprised by a notice that they are required to buy flood insurance next year about this time.

The irony of remapping our city just at this time is that the International Water and Boundary commission is currently spending $220 million to build levees in the Upper Valley to prevent future flooding such as what we saw in 2006. Federal stimulus money is covering the cost of the project, but it will not be finished until sometime next year.

After the levee is finished, then homeowners have the right to appeal again but that can take up to two years to process and in the meantime you will have to pay for the flood insurance.

Of course, El Paso is not the only community being affected by this. The new flood maps are affecting the entire nation. An article in the Houston Chronicle on May 23, 2010 states that 17 counties along the Texas coast will be designated as flood zones. Even though Galveston County and Brazoria and Jefferson Counties have built levees to prevent flooding, the levees were started in 1962 and completed in the 1980s so they probably will not meet current FEMA standards. All levees must be certified within two years after the new data is ready, but at an estimated cost of $250 million to $350 million to meet the new standards, Galveston County says it does not have the money and does not think it can get it. In nearby Jefferson County, the estimated cost of bringing the levee protecting Port Arthur up to code is about $500 million.

According to the Houston Chronicle article, this problem is happening nationwide and not just here in Texas. State leaders from all over the country are asking FEMA to extend the deadline and pressuring Congress to write new legislation that would prohibit FEMA from updating the flood maps if a plan exists to upgrade the existing levee system and if residents have been warned about the risk of flooding. But remember that flood insurance is required for properties that have more than a 1% chance of flooding, so you can be in an area where your real risk is quite small, but you will still be required to buy flood insurance.

Last week, the House of Representatives passed HR 5114, the Flood Insurance Reform Priorities Act, sponsored by Maxine Waters (D-CA) and Barney Frank (D-MA), which we have discussed in some depth. (See The River is Rising and the River is still Rising from May and June). That bill would extend the flood insurance program for five years, but it would also raise the cap on premium increases from 10-20%. While this bill is not expected to pass the Senate, it is a reminder that shoring up the ailing National Flood Insurance Program is a priority for Congress. But shoring it up at what cost? According to the Houston Chronicle, Galveston County Judge Jim Yarbrough sent a letter to Senator Kay Bailey Hutchinson stating that if the levee protecting Texas City failed cerfication, the cost of insurance to homeowners could rise from $500 per year to $5000 per year. That is a big enough increase to force people out of their homes, particularly in the gulf region which has been hard hit by the oil spill, the loss of tourism and the moratorium on drilling.

So what should homeowners do? A good stop-gap plan is to be proactive. The local flood maps are available at www.elpasotexas.gov. If you live in an area designated as a flood zone, it might be prudent to buy flood insurance now at the 2010 rate before the new maps become active. At least that way, you are buying in at the current rates. And for home buyers out looking to purchase a new home this summer, find out whether your dream home is in one of the newly mapped flood zones. A little research today can save a lot of headaches a few months from now.