Tuesday, November 26, 2013

Hi....I'm from the government and I'm here to help

This really has me worked up:  Yesterday my friend Joan Perry posted on Facebook how National Flood Insurance Program reform is causing flood insurance rates to go through the roof in her hometown of Charleston, SC, and probably many other places, too.  I mean rates so high people can't sell their homes and many may actually lose them to the banks.

Briefly, homeowners insurance does NOT cover loss due to flooding.  For that the federal government set up an insurance program available at subsidized rates for those living in coastal areas or other low-lying places.  But after hurricanes Katrina and Sandy the insurance fund is flat busted broke.  Congress passed reforms for the program that were meant to build up reserves again, but as usual, they've just f__ked things up royally.

A newspaper article reported one couple who had planned to sell their home for $349K and downsize, using the surplus to fund their retirement.  But then they found that their flood insurance premium has gone up 1,367% to $22,000 a year.  One quote was $38,000!  Now their home is worth exactly $0 as no one in their right mind will buy it.  One of Joan's commentors said her premium went from $1,200 to $8,000.  Joan's premium on her modest home more than doubled.

If the government wants to eliminate the subsidies, that's one thing.  You do it in increments over a few years time, NOT all in one massive blow.  How many people can afford to have their house payment (principle, interest, taxes, and insurance) go up $2,000 a month?  

Lenders understandably require flood insurance to protect their collateral, but if the owners can't afford it, and if they can't sell, do they just let their homes go back to the bank?

This is what happens when the government tries to directly run an insurance program.  Do they invest their excess premium income in times of low losses to build up their reserves like real insurance companies do?  Do they buy re-insurance (to spread the risk) like real insurance companies do?  I doubt they have that much business sense.

Congress....where do we get these morons?  And "the people" get screwed again.



  1. Another good reason not to buy a house.

    1. Especially in flood prone areas.

    2. Bill, the problem with the statement "flood prone areas" is that flood zones do change. People may live in an area for 30 or 40 years and never experience a flood only to have the 100 year storm that results in flooding and FEMA redrawing the flood maps. Their house may not have had water but suddenly they are dealing with living in a "flood zone". Yes, I know many people that scenario happened to. In addition, flooding often happens due to man-made changes to the environment - overpasses, construction, change of natural drainage, new neighborhoods, etc. Avoiding a "flood prone area" is not quite as simple as it sounds.

      Here on the Mississippi Gulf Coast we were told after Katrina, that no one should live on any coast. I always wonder about the ignorance behind that statement? I wonder how those people then expect the ships to be unloaded, the ships to be built, the shrimp to be caught, the trains to receive imports and drop off exports, the oil to be refined, etc.

  2. Ouch! I believe they have also redefined flood zones.

  3. All those houses in coastal areas are going to be underwater or washed away due to global warming. Even without the bank's requirement of flood insurance, I would think it would start being hard to sell a house that is in these coastal areas. I'm glad we sold our beach house on Galveston 10 years ago.

  4. This, like many of your blog topics, is really a hot button item in my world. First off, I am totally unable to think of a single thing Da Gummint has done right in the past twenty years. Not. One. Single. Thing!

    Second, the same gummint paid ten million taxpayer dollars to repair damage to property located on the south shore of Long Island on a SANDBAR in the Atlantic Ocean. Talk about hubris and stupidity. People built million dollar homes twenty yards from the edge of the ocean where the 1938 hurricane killed scores of people and flattened every building around, and then when the inevitable happened, they held out their hands to Da Gummint to fix it, and the gummint thereupon did.

    As BG has or will point out, the definition of what constitutes a 'flood prone area' is being made by the same great brains who invaded Iraq, used Agent Orange as a weapon, decreed that No Child should be Left Behind and who are currently muddling through creation of a Third World Health Care system.

    Blaming the victims in this instance is unfathomable. fin

  5. I've never understood why the government subsidizes people to live in flood zones in the first place. We shouldn't encourage people to live in flood zones.

  6. Island Life is Good!

    We paid our flood insurance in June and it was $ 354 for $ 155,000.00 coverage. I sure hope it does not triple next year.

    Got to go play in the sand, see ya.