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2012 Law Could Send N.C. Flood Insurance Premiums Soaring

By Jeff Hampton, The Virginian-Pilot
McClatchy-Tribune Information Services

May 02--DARE COUNTY, N.C. -- Outer Banks real estate agents want changes made to a federal law that could hike home flood insurance premiums by thousands of dollars.

"We see where this is going to be self-defeating," said Willo Kelly, government affairs director for the Outer Banks Association of Realtors. "The unintended consequences will be that hundreds of people will be forced into foreclosure."

Higher insurance premiums could ward off buyers and cause lenders to turn down loans, Kelly said. Even homes built to today's standards could fall under new flood zones and be hit with large rate increases, she said.

Her association plans to meet Friday in Nags Head with national and state officials to see whether the Biggert-Waters Flood Insurance Reform Act of 2012 can be amended to reduce its financial impact on homeowners, Kelly said.

Congress passed the Biggert-Waters Act to do away with discounted rates on homes that are not primary residences and were built before the flood zone maps of 1974. The goal was to help pay back the U.S. Treasury for losses from Hurricane Katrina and other big storms.

The law could bring about higher rates for all homes in flood zones. Also, more buildings could be included in expanded flood zones when new maps come out in 2014, Kelly said.

The law already is affecting the Outer Banks. Agent Jackie Sample recently sold a home built in 1997 on the Pamlico Sound side of Avon that since has been included in a "V" zone, the most hazardous and most expensive flood zone. At first, the lender was going to require the buyer to get new flood insurance, raising the rate from about $400 a year to $8,500 a year, Sample said.

The original elevation certificate was found, and the lender agreed to grandfather the home in a less expensive "A" zone, she said. Eventually, under Biggert-Waters, property owners will have to get "V" zone insurance, Sample said.

"This is a prime example that the people in Washington do not understand what they have done," Sample said. "When the grandfathering clause was there, you didn't get hit with big surprises."

In some cases, flood insurance rates could reach $30,000 a year for buildings in low-lying areas, Kelly said. Costs also will rise for homes along some riverfronts farther inland, Kelly said. So far, the new law has affected only properties built before 1974, when existing flood insurance rate maps came out, she said.

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The flood insurance program offers big discounts for properties built high above what is known as the base flood elevation, determined by the flood zone, said Spencer Rogers, a coastal construction and erosion expert with North Carolina Sea Grant, a coastal research organization.

"Flood design is really simple," he said. "Don't get wet."

Congress set up the National Flood Insurance Program in 1968 following losses from when Hurricane Betsy struck Louisiana three years earlier, according to a 2010 report by Erwann O. Michel-Kerjan in the Journal of Economic Perspectives. Kelly provided a copy of the report.

At the time, private insurers generally were not willing to offer risky flood insurance policies. The federal government set up the program offering discounts to existing properties to get more owners to participate, according to the report. It was mandated to be available and affordable. Later, to further increase participation, anyone in a flood zone with a mortgage had to get flood insurance.

The program worked well until 2005, when large storms, including Katrina, made landfall. The NFIP had to borrow more than $18 billion from the Treasury to cover the losses, Michel-Kerjan wrote.

With the Biggert-Waters Act, Congress has attempted to make the program solvent and repay the loan from the Treasury, Kelly said.

The NFIP did not charge full rates based on the risk and did not account for properties repeatedly flooded where owners made multiple claims, Kelly said.

The meeting on amending the flood insurance law will be at 9 a.m. Friday in the Outer Banks Association of Realtors' office, 201 W. Eighth St., Nags Head.

Jeff Hampton, 252-338-0159,


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