By Christian M. Wade
CNHI Statehouse Bureau
---- — MANCHESTER-BY-THE-SEA — Al Cohen and his wife were searching for a waterfront home when they came across a dream house with spectacular views of the ocean.
Before they could make an offer on the property, they learned the bank would require federal flood insurance for the 2,000-square-foot, two-story Victorian. Premiums would cost more than $8,000 a year — on top of monthly mortgage payments and real estate taxes. That’s because a large chunk of the property was located in a newly reconfigured, high-hazard flood zone.
“It was definitely a deal killer,” said Cohen, a 52-year-old advertising consultant who recently moved to the North Shore from Pennsylvania. “We’re looking at places a little further inland.”
Under legislation passed by Congress in 2012, the Federal Emergency Management Agency has been redrawing the nation’s flood-zone boundaries, many of which haven’t been updated since the 1970s, and phasing out decades-old insurance subsidies for owners of homes in high-risk areas. The move is aimed at shoring up the National Flood Insurance Program, which is nearly $24 billion in the red as a result of losses from Hurricane Sandy and other catastrophic storms, according to FEMA.
But the changes are driving up insurance rates for property owners who already have coverage — to as much as $60,000 a year, according to some state lawmakers — and forcing others to get insurance for the first time, even if their property hasn’t flooded.
Real estate agents say that puts a damper on sales in flood zones — along the coast and inland — as prospective buyers balk at high premiums.
“We’re had deals go sour from Boston to the Berkshires as a result of this law,” said Peter Ruffini, president of the Massachusetts Association of Realtors. “If you’re in the middle of a transaction and you find out that the flood insurance is going to cost you something like $25,000 a year, that’s a major concern for most people.”
Amid the public outcry, federal and state lawmakers have responded with rare bipartisan unity.
On Thursday, the U.S. Senate voted 72 to 22 to repeal a provision in the 2012 law that eliminated subsidies for hundreds of thousands of properties that were originally built to code but later found to be at greater flood risk.
“Grandfathered” homeowners benefit from below-market insurance rates subsidized by other policyholders. The new legislation preserves their subsidies and caps premium increases at 18 percent a year. Another provision allows sellers to pass subsidized policies onto those buying their homes.
The House passed the measure last week by a vote of 306 to 91, with support from U.S. Rep. John Tierney (D-Salem) and other Bay State congressmen who had voted for the 2012 law. President Barack Obama is expected to sign it.
“This actually makes some major changes to the 2012 law, instead of just delaying it,” Ruffini said. “It will provide some immediate relief for people.”
Earlier in the week, the Massachusetts House unanimously approved a bill designed to lower premiums by tying the required level of flood insurance to a homeowner’s outstanding mortgage balance, rather than full replacement value. The measure also would prohibit mortgage lenders from requiring coverage for the contents of a home or including a deductible of less than $5,000.
The legislation could be taken up by the Senate as soon as next week.
State lawmakers said despite local efforts to provide relief for homeowners, the issue should be resolved in the Beltway, not on Beacon Hill.
“We’re doing what we can within the scope of our authority, but ultimately, this is a problem that needs to be addressed at a federal level,” said state Sen. Bruce Tarr of Gloucester, the Republican minority leader. “I think what we’re doing locally will provide some relief, but it’s really more intended to help people stay in their homes than it is to help folks sell their homes.”
Supporters of the 2012 law said Thursday’s bill in the U.S. Senate continues to subsidize home ownership in risky, flood-prone areas and increases the need for a future taxpayer bailout of the National Flood insurance Program.
“While politically expedient today, this abdication of responsibility by Congress is going to come back and bite them and taxpayers when the next disaster strikes,” said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group. “Everyone knows this program is not fiscally sound or even viable in the near term.”
The flood insurance program collects $3.5 billion in premiums each year, but FEMA officials say it needs another $1.5 billion from once-subsidized policyholders to remain solvent.
An estimated 1.1 million of the 5.5 million flood insurance policyholders receive subsidies.
Individual premiums for flood insurance depend on a host of factors but currently range from $400 a year to more than $8,000 in high-risk zones, according to FEMA’s website. There were more than 60,000 flood insurance policies in Massachusetts in 2013, but figures are not available for how many more properties have been brought into flood zones as a result of the new maps.
The new maps also are being challenged.
Rockport officials recently convinced FEMA to modify flood maps for the Sandy Bay and Long Beach areas, because the elevations used to identify at-risk properties were based on a Pacific Coast wave model that was not appropriate for the East Coast. The town spent $24,000 on scientific studies to prove that the maps were flawed.
Congressional lawmakers have said Rockport’s challenge should set a precedent for the state — because the maps were all largely based on a method used for Pacific Coast communities — and have called on the Obama administration to postpone the mapping process for a review of FEMA’s methodology.
FEMA officials said the changes to the flood zones are meant to protect homeowners.
“We understand this impacts a lot of people, and we’re obviously concerned about that,” said Dennis Pinkham, a spokesman for FEMA in New England.
“But we are also concerned that there are a lot of homes and other structures in these high-hazard areas, and we want to be sure that we show people as accurately as we can what risk they have. That’s what these maps portray.”
Material from the Associated Press was used in this report.