Is Flood Insurance Hurting The Housing Market?

February 25, 2014 at 8:53 am 3 comments

What really caught my eye about the National Association of Realtors’ (NAR)quarterly report on the State of US Housing was not the familiar litany of excuses for why, even though optimists continue to see robust economic growth right around the corner, the housing market continues to underwhelm (the weather was bad, credit is tight and the first time homebuyer isn’t buying, yada, yada, yada). No, what really caught my eye was the Association’s assertion that spiking flood insurance premiums are beginning to take a bite out of housing.

According to NAR President Steve Brown, “Thirty percent of transactions in flood zones were cancelled or delayed in January as a result of sharply higher flood insurance rates,” he said. “Since going into effect on October 1, 2013, about 40,000 home sales were either delayed or canceled because of increases and confusion over significantly higher flood insurance rates. The volume could accelerate as the market picks up this spring.”

If part of what is going on here is political gamesmanship, it’s gamesmanship of the best kind. The Senate has already passed legislation that would delay reforms mandated by the Bigget-Waters Reform Act of 2012. One of the primary goals of the Act is to entice private insures into the flood insurance business by phasing out government subsidies that insurers argue make it impossible to accurately and cost effectively price insurance in areas where it is necessary.

While the argument appeals to the free market guy in me, members of both sides of the aisle are justifiably concerned by the evidence that without amendments to this legislation, individuals who live in areas prone to flooding will see huge spikes in their flood insurance premiums. No surprise then that Congressman Michael Grimm of Staten Island is one of the primary proponents of legislation (HR3511) to keep insurance premiums from rising. It appears that House action on the bill is imminent, but the bill has already faced unexpected delays. At the end of the day, this is one of those bills that shows that ideology won’t trump legislation to help constituents stay in their homes.
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A Failure to Communicate?

I was more than a little surprised when I read Chairman Matz’s speech before CUNA’s Government Affairs Conference yesterday. With some credit union officials describing the Risk Based Net Worth proposal as Armageddon for the industry, I figured Matz would use the opportunity to explain why NCUA feels its proposal is medicine worth taking for the industry as a whole. I was wrong.

Given the fact that the industry itself pushed for net-worth reform for several years before seeing NCUA’s proposal, the agency undoubtedly has some arguments to make in its favor. But its failure to mount any kind of a defense of its idea is becoming a real problem. The proposal itself lacks the kind of detail that credit unions deserve when their regulator puts forward a proposal of this magnitude. Matz’s silence in the face of mounting credit union concerns does nothing to address legitimate credit union jitters on this issue.

Entry filed under: Advocacy, Compliance, Economy, General, Regulatory. Tags: , , .

NCUA’s Transparency Double Standard Ding Dong, the Witch is Dead

3 Comments Add your own

  • 1. Keith Leggett  |  February 26, 2014 at 8:11 am

    Henry:

    You should read Larry Fazio’s column in Credit Union Times. It lays out the legislative reasons for the proposed changes.

    Fazio writes: “First, section 1790d(b)(1)(a) of the Act requires the NCUA’s prompt corrective action requirements to be comparable with those of the other federal banking agencies. The NCUA used the FDIC’s capital rule, which is based on Basel III and was finalized in July 2013, as a baseline.”

    He further writes: “Second, section §1790d(d)(2) of the Act requires the NCUA’s risk-based requirement to account for all material risks. Thus, while Basel and the FDIC’s rule focus primarily on credit risk, the NCUA’s proposed rule factors in interest rate and concentration risk.”

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Authored By:

Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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