Home insurance woes threaten mortgage lending, experts warn

by Andrew Martinez, National Mortgage News | September 25, 2023

Federal inaction on a looming flood insurance deadline could further disrupt the nation’s ailing housing market.

Mortgage lending in some regions could come to a halt if Capitol Hill fails to reauthorize the National Flood Insurance Program set to expire Sept. 30. That threat comes atop soaring home insurance premiums due to environmental disasters and broader economic conditions.

“If we don’t take on those larger questions, then insurance companies will be the ones left in charge of land use and housing policy through their rate and underwriting decisions,” said Douglas Heller, director of insurance at the Consumer Federation of America, in a U.S. Senate committee hearing earlier this month.

Property insurance premiums have risen 40% faster than inflation since 2017, and homeowners paid $125 billion to the industry last year, Heller said. Floridians by far pay the highest average premiums, at around $6,000.

Some homeowner premiums among the 4.7 million NFIP policies have soared following a new Risk Rating 2.0 methodology. Ten states have sued the government over the changes.

New mortgages would halt if the NFIP isn’t reauthorized, Sen. John Kennedy, a Republican from Louisiana, said. When the program lapsed for a month in 2010, the market lost around 1,400 residential home sale closings per day, according to the National Association of Realtors.

The Mortgage Bankers Association in a letter also urged senators to renew the program. Lawmakers during the hearing didn’t suggest an NFIP renewal was imminent, nor did they discuss interest in reform.

“I think the consensus is everybody believes they’re just going to redo it for a year,” said Tony Turner, senior vice president at New Orleans-based Gulf Coast Bank and Trust. “It’s just kicking the can down the road.”

The average annual NFIP premium was $935 in the fourth quarter, up 22% year-over-year. Previously unavailable private flood coverage has buoyed protection. Experts meanwhile say many homeowners underestimate their need for flood coverage.

Insurers blamed exits from California and Florida on greater flood, fire and hurricane threats and their expenses multiplied by inflation. Homeowners insurers also have their own policies, and reinsurance firms have hiked their premiums up 35% in the first half of this year, according to expert testimony in the Senate.

“Everybody just thinks it’s climate change,” said Craig Eagleson, president and chief revenue officer of Incenter Insurance Solutions. “The natural disasters are a piece of it, but it’s the inflationary and the regulatory issues.”

Eagleson’s firm provides embedded insurance to real estate businesses, allowing consumers to access coverage options as they seek a mortgage. He recalled a $9,000 premium for a $3 million house on Florida’s Atlantic Coast two years ago compared to a $74,000 policy on a $3.4 million home north of Miami six weeks ago.

Read the rest of the article at National Mortgage News

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