Rough Waters: Homeowners Feel Blindsided

Jan 30, 2014

  Homeowners Feel Blindsided by Proposed Flood Insurance Rate Hikes

Under a new Federal law, many coastal homeowners will see their flood insurance rates increase…and in some cases, skyrocket. The Federal Emergency Mangement Agency -- commonly called FEMA -- recently re-drew the flood maps that serve as guidelines in setting flood insurance rates, and many homeowners find their properties inside flood zones for the first time. WCAI’s Brian Morris reports that FEMA says re-drawing the maps was necessary and long overdue, while others point to massive payouts FEMA needs to recoup following Hurricane Katrina and Superstorm Sandy.  

Anne Kakeley works as an assistant in the Fairhaven selectmen’s office. She and her husband bought a small cottage in Fairhaven in 2004 – the height of the real estate bubble - and the home’s value has dropped significantly since then. Now, with two kids, the 900 square foot house is too small, and they’d like to sell, but can’t.

“Even if we could somewhat recover from the whole bubble bursting, we’re in what’s called a Zone AE, which is only marginally better than a Zone VE,” Kakeley said.

The “zones” Kakely refers to are FEMA flood hazard zones. Any homeowner in a flood zone who has a Federally-insured mortgage is required to carry flood insurance. FEMA updated its flood maps last year, and many homes are now included in flood zones for the first time. That means large – and in some cases huge – flood insurance rates for many homeowners. Kakeley’s home has always been in a flood zone, but her rates have steadily climbed from $1,000 to $2,600 a year. A printout shows her house in relation to her neighbors.

"I just never thought that my government would hang me out to dry quite this bad." Anne Kakeley

Kakeley: The people to our right, they’re a zone VE. We’re a zone AE,” she says. “These people aren’t a zone anything. It’s so arbitrary. I would really love to see the backup work to this, and shame on me for not having gone to the public hearings and everything like that that led up to this. I just never thought that my government would hang me out to dry quite this bad.”

The National Flood Insurance Program, or NFIP, has traditionally subsidized many flood insurance policies. Massive claims from Hurricane Katrina and Superstorm Sandy put the NFIP $24 billion dollars in the red. So Congress passed a law in 2012 requiring NFIP to raise flood insurance rates to make up for the losses. FEMA generates the flood maps that NFIP uses to determine flood insurance rates. And FEMA has strict rules about how high up the structures on a property must sit to avoid falling in a flood zone, which triggers those astronomical rates. To prevent that, homeowners like Kakeley can raise their structures, or take other measures to mitigate risk. But none of the options come cheap.

Flooding in Fairhaven, MA. Taken on Oct. 29, 2012

“I’d have to fill in the basement completely with poured concrete, go up 6, 7 inches, and then build on that,” Kakeley said.

FEMA rules state that if a homeowner wants to enlarge their house by adding vertical space, they can only spend half the assessed value of the structure on their property. In Kakeley’s case, that structure – the house itself - is worth only $80,000. 

“Nobody can build an addition or a second floor on a home for $40,000, $45,000. You know, you can’t build up, you can’t sell, you can’t alter it – I can’t expand out” she said.

Kakeley has taken her house off the market for now, but her realtor will list it again in the Spring.

“He’s being honest with me,” Kakeley said. “He says, ‘We’re marketing this home as a seasonal residence, hopefully to someone with enough liquid assets where they could just purchase a home outright.’

Many area realtors face similar obstacles for properties in flood zones. George Kennedy of Kinlin-Grover in Harwichport said he sold a house in Dennisport for a little over $200,000. It’s not in the current flood zone, so the buyer was able to buy flood insurance for $500 a year, guaranteed for four years. But under the new FEMA maps, the property will be included in the flood zone.

Multi-Year Flood Hazard Identification Plan on the FEMA Website

“Once that four years is up, it’ll be anywhere between $3,500 and $4,000 a year - a huge expense for a property in that price range,” Kennedy said.

And that’s over and above real estate taxes and homeowner’s insurance. Kennedy says 10 to 15 percent of his listings are affected.

“The premiums that we’re hearing about are so astronomical, it’s gonna ruin the market. It’s outrageous,” he said. “You can’t expect a retired person, who maybe has a hundred thousand dollar mortgage on an older home, to now pick up 4, 5, 6 thousand dollars in additional expenses. And the bank’s gonna require it. And then the bank will pay the premium, and then they’ll add it on to your loan.”

At the moment, both homeowners and realtors are worried – homeowners about how high their flood insurance rates could go, and realtors about how badly the market will be affected. Massachusetts lawmakers are currently trying to delay implementation of the new FEMA maps. If successful, that could bring some welcome relief. But there’s a growing sense that whatever relief may come will only be temporary.