Realtor Support For National Flood Insurance Program May Be Misguided

Recently the Illinois Association of Realtors sent out a Call For Action in an effort to gain support for reforming the National Flood Insurance Program. The National or Illinois associations periodically send out these Call For Actions regarding some political initiative for which they want realtors to contact their representatives for support. Often these initiatives are very self-serving – e.g. maintaining the mortgage interest deduction – so I just ignore them since I really don’t like special interests lobbying. In fact, I was ready to write a simple blog post about how the real estate industry was just looking for another handout with this particular Call For Action. Then things got complicated.
In case you are not aware, the flood insurance program is unsustainable in its current form. It loses $1.4 B per year and is $24.6 B in debt. Obviously the insurance is priced too low. In fact, the insurance is so low that there is little disincentive for some homeowners to continually rebuild in high risk areas. For example, as this Politico article on How Washington Made Harvey Worse points out:

…just 2 percent of the program’s insured properties were receiving 40 percent of its damage claims. The most egregious example was a home that had flooded 16 times in 18 years, netting its owners more than $800,000 even though it was valued at less than $115,000.

I started to poke around on the NAR Web site and at first it looked like the Realtor Association was actually taking a well reasoned approach to the flood insurance program. It turns out that the timing of this Call For Action relative to the Houston flood is just coincidental. The National Flood Insurance Program is up for reauthorization at the end of the month. And back in February the NAR put together their Principles For Flood Insurance Reform, which looks pretty reasonable. I was pleased to see that they support private insurance where it’s more competitive and pricing that corresponds to the risk. The only problem is that they want to see the price increases “phased in over many years”, which I can only imagine how long they want “many years” to be. I would think that a 4 year time horizon would be sufficient for someone in a high risk area to get hit by another hurricane and then never return.
I guess congress could always simply reauthorize the flood insurance program without reforming it but there is The 21st CENTURY FLOOD REFORM ACT (HR 2874) up for consideration in the House of Representatives. The NAR provides a good overview of the act in a frequently asked questions format and it looks like this act could really improve the flood insurance program. It’s not perfect but it’s probably better than just continuing down the doomed path we are on now.
So you would think that the NAR would be after their members to try to raise support for this act. Well, it doesn’t look like that. When I click over to their Realtor Action Center Web page for this initiative the message they want us to send to our representatives is watered down. It mainly focuses on reauthorization, doesn’t mention HR 2874, doesn’t mention raising premiums but does mention capping premium increases, and then talks about the importance of this program to real estate transaction (i.e. commissions). Yeah, it comes across as pretty self-serving. I was prepared to support the passage of HR 2874 but I can’t send this letter.
As for you…I would suggest looking over the NAR’s frequently asked questions on HR 2874 and see if you want to give your representative a gentle nudge to vote for it. It’s better than letting the current program lapse or getting reauthorized without reform.
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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