ASFPM Working with HUD to Find Flood Insurance Affordability Solution

Following is the letter, signed by ASFPM, Mortgage Bankers Association, National Association of Home Builders, National Association of Local Housing Finance Agencies, and National Association of REALTORS® to the Assistant Secretary for Housing/Federal Housing Commissioner.

Feb. 6,
2014

The Honorable Carol
Galante

Assistant Secretary for Housing/Federal Housing Commissioner

U.S. Department of
Housing and Urban Development

451 7th Street, S.W.

Washington, DC 20410

Dear Commissioner Galante:

The undersigned organizations are
seeking to confirm the
eligibility
of the Federal
Housing Administration’s (FHA) Section 203(k) program for
the
rehabilitation of homes that have not been
damaged in
a flood but are at risk of damage in future flood events. Many property owners
live in homes where
there is no flood damage per-se,
but
due to the home’s location
in the floodplain
and its

age, it must be mitigated
or the homeowner will face rising flood insurance rates. We believe that 203(k)
loans
are eligible for this purpose. By confirming that the program could be used in
this way, the
Department of Housing and Urban Development would help raise awareness of
the program,
allowing
many more property owners to benefit from the opportunity to reduce their risk and costs of future
flood disasters.

In 2012, Congress
passed the Biggert-Waters Flood Insurance Reform Act to bring long-term financial
solvency to the National Flood Insurance Program (NFIP) and to phase out discounts on flood insurance
premiums
that may have served to encourage occupation of flood-prone areas. The Act reduces flood insurance subsidies that have been built into the NFIP for
the
past 45 years and requires that all
properties
are eventually rated at their full
risk rates. As
a result, the program will be much more financially
solvent and help inform property owners
of the true nature of their flood risk. These changes
are causing a tremendous amount of concern
in communities
and among property owners
nationwide who may be affected by significantly higher
flood insurance rates, especially for
those structures that have previously received subsidies,
and those who may be affected by future flood zone changes. In both instances, the
structure’s flood
insurance rating may result in premiums that have increased by several
thousand dollars per
year, and under Biggert-Waters these rates will continue to increase. While the home may be considered habitable for construction purposes, it may be unaffordable
to
current residents and prospective buyers due to the costs of flood insurance.

Flood insurance rates are set based on how much above or
below the lowest floor
of a
building is relative to the
known 100-year flood elevation at the site.
Rates can be significantly reduced
by elevating a home to a level at or
above the 100-year
flood elevation, or
by making other retrofits to reduce damage associated with the 100-year flood. Increased rates dictated
by Biggert-Waters are
beginning to take effect, and our members are on the front lines working with
homeowners seeking
options and flood insurance premium relief.

The Section 203(k) program is being used
successfully post-Sandy to repair
damaged homes, which
ultimately makes them more resilient to floods and other extreme weather events. Generally, these homes have either been elevated on site or relocated to a new site which is less-flood prone. Elevation costs can range from $20,000 to more than $100,000. Consequently, we believe homeowners who are
facing significant increases in flood insurance premiums would benefit if HUD were to confirm that the

203(k) program was available
for
either the repair of flood damage or the mitigation of future flood threats. In fact, it may be the only affordable option available
to
many families.
Another benefit of the

203(k) program is that it is available across
the country, and many REALTORS®,
builders and lenders are already familiar with
how it works.

Momentum is building in Congress
to find some relief to the more challenging provisions of
the Biggert- Waters legislation.
There are several legislative efforts
underway right now as Congress
tries to further
refine the law and address these affordability challenges. Multiple solutions must be found to
address flood insurance affordability.
HUD’s promotion
of the 203(k) program for this purpose could provide a
viable
solution to an emerging problem which will quickly grow without action.

We appreciate
your expedient consideration of this request and if HUD can provide the
needed confirmation letter, we are committed
to
working with you to rapidly communicate this information to stakeholders nationwide.

Respectfully,

Association of
State Floodplain Managers

Mortgage Bankers Association

National
Association of Home Builders

National
Association of Local
Housing Finance Agencies

National
Association of REALTORS®