Responding to pleas from panicked homeowners and housing industry leaders who claim new flood zones are hurting real estate sales and the economy as a whole, the U.S. Senate today passed a procedural hurdle to delay steep increases in insurance premiums. The vote was 86 to 13 with a final Senate vote expected as early as Wednesday.
While the move is designed to postpone by four years insurance rates
which reflect the true cost of flood risk, it provides no relief for vacation homes -- a large percentage of which lie in flood-prone coastal, river and marsh locations. On Cape Cod, roughly half of all residential properties are vacation homes, according to Cape and Islands Association of Realtors statistics.
Flood insurance premiums, mandated by mortgage lenders, could still rise ten-fold on vacation homes. Cash buyers are not required to have homeowners insurance of any sort.
Even if the government puts off implementation of the insurance increases, the clock is ticking. All homes, primary and secondary, will pay the true, higher rates in four years.
The National Association of Realtors blames a reduction in home sales in the third and fourth quarters last year on the chilling effect brought on by new, expanded Federal Emergency Management Agency flood zones. The zones were created after Hurricane Katrina in 2005 ravaged reserves in the National Flood Insurance Program. Superstorm Sandy brought an avalanche of new insurance claims in 2012.
The Biggert-Waters Act of 2012 intended to restore the balance sheet to the battered NFIP, however the law had the unintended effect of increasing insurance premiums so much, that some homeowners could not afford to pay the bill and faced losing their homes.
In addition, the University of Massachusetts in Dartmouth conducted a study this fall which found the mapping system used by FEMA to determine the new zones is an outdated model more appropriate for the Pacific Ocean than the Atlantic. Senator Edward Markey of Massachusetts indicated that he intends to investigate the issue further.
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