There are several areas of Texas classified as “high-risk”, meaning that the chances for wind or flood damage are greater. In such areas, homeowners with government-backed mortgages are required to maintain specialized insurance on their properties to cover such damage. Unfortunately, the heels of Hurricane Harvey reveal that federal flood insurance rules are not enforced, leaving victims to pay the price. The question must be asked – “why?”
Federal Flood Insurance Rules and Problems
Across the United States, an estimated 1.5 million homes are considered in flood zones. In 2015, the Federal Emergency Management Agency (FEMA) estimated that only half of those homes had active flood insurance coverage as mandated by the U.S. government. FEMA could not narrow down a percentage because it is not responsible for tracking such data. What is concerning is the fact that no agency is responsible for tracking this data. There is a “blind spot” between what the government requires and what homeowners actually have coverage for.
According to the Washington Post, over 80 percent of Texas homes hit by Hurricane Harvey did not have active flood insurance. This could be due to the fact that homeowners do not adequately understand insurance policy differences, or a misconception that the government will still provide assistance if homeowners let insurance lapse. In either case, it seems the government is not prepared to monitor and enforce its own rules.
To make matters worse, companies like Freddie Mac and Fannie Mae, which hold around 60 percent of all U.S. mortgages, seem to be equally as blind to the reality of the problem. A spokesperson for Freddie Mac stated recently that a review of loans shows a “very low percentage of noncompliance”. However, since 2012, at least 27 institutions have been fined by the Office of the Comptroller of the Currency for failure to meet obligations related to flood insurance.
Further reviews show loan servicers reluctant to track or provide information about the number of mortgages held, or compliance with federal flood insurance rules. There also is little risk involved for servicers failing to comply. The result? Experts warn that the ignorance surrounding flood insurance rules could soon cost the mortgage industry more. As more people without insurance lose their property to damage, more houses are being left vacant, derelict, and foreclosed. Many of the properties are unsalvageable.
The Future of Flood Insurance
There is no clear solution to the flood insurance problem. Until the U.S. government better monitors, enforces the rules, and demands compliance, the blind spot will continue to grow. Some experts have suggested that policies spanning up to 10 years could help ensure that homes are covered. Others suggest adding mandatory flood insurance to all homeowner’s insurance policies.
While there may be no clear solution, what is clear is that homeowners in areas prone to natural disasters need better information and guidance about their insurance coverage and how to file claims. Contact Daic Law today to learn more about insurance claims and protecting your property and legal rights.