The North Bend Eagle


Floos insurance on a 1-story home in North Bend

Flood insurance threatens to drown local housing market

by Nathan Arneal
Published 12/25/13

Click here for more info on Biggert-Waters and its affect on local flood insurance and housing.

After a year and a half spent rehabbing a run-down house in North Bend – tripling its value in the process – Bart Bosco was finally ready for the investment to pay off.

He had a buyer all lined up and a price agreed upon.

Then the prospective buyer saw what flood insurance was going to cost him. He was going to pay a $600 per month mortgage on the $75,000 house. Flood insurance was going to cost him an additional $300 per month.

The deal was off.

So what can be done?

The best chance to reign in soaring flood insurance premiums appears to be the legislative process.

Realtor Cristy Bloom said she and her company have been requesting help from elected officials.

“We’re writing letters,” she said. “We’re doing everything we can to hope that there will be some kind of relief on this.”

Another possible solution could be a dike that would take North Bend out of the flood zone.

In 2004, the Army Corps of Engineers proposed a dike along Fifth Street, the gravel road directly south of the railroad tracks. The city council at that time didn’t like any plan that would potentially make the situation worse for the houses around the golf course and lakes that would find themselves on the wrong side of the dike.

City Clerk Theresa Busse said even that plan is no longer an option.

“The Corps is no longer taking on any more projects because the government is broke and they’re having a hard time funding the projects they’ve already started,” Busse said.

The city of North Bend could not afford to undertake a multi-million dollar project like building a dike by itself, Busse said. Just doing a study and drawing up plans would cost $350,000.

At any rate, future dike plans will likely be tied into the Highway 30 bypass, which could act as a dike to the city’s north, so any dike plans would have to wait on the bypass to be built. Even if a dike were built, no one is guaranteeing that it would even lower insurance rates.

“We could build a dike, but if it’s not going save anyone on insurance premiums, (taxpayers) not going to be willing to do that,” Busse said. “I don’t know who could promise that could happen. FEMA is so up and down with their rules that... I don’t know.”

S. 1610, dubbed the “Homeowner Flood Insurance Affordability Act of 2013,” would delay many of the costly provisions of Biggert-Waters. It is currently being studied by a Senate committee.

There is also a bill in the House drafted by Rep. Maxine Waters of California – one of the original sponsors of Biggert-Waters – to delay implementation until more study on BWA’s consequences can be done.

“Who’s going to buy a house with a $600 house payment and a $300 flood insurance payment?” Bosco said. “My (insurance) agent has been warning me about this for some time, and I thought he was just being Mr. Doom and Gloom. Well, he’s not. He’s being Mr. Reality, and the stark reality is that this is a bad deal for not only North Bend, but half of Fremont and Schuyler and anyplace in the United States that has flood insurance.”

Home sale triggers rate hike

The Biggert-Waters Act of 2012 went into full effect Oct. 1, 2013, and has sent insurance rates skyrocketing in high-risk flood areas such as North Bend. A sudden jump in rates by as much as 600 percent will be triggered any time a property is sold, expanded by more than 50 percent or if the current policy lapses.

People who keep their flood insurance policy current and do not sell their house will not see an immediate jump in rates, but their rates will be increased gradually each year until they come in line with the new rates.

Steve Grueber of North Bend Insurance Agency first read about Biggert-Waters in an insurance publication. The bill was passed July 6, 2012, and affects any houses purchased since then, although the change passed pretty much unnoticed by the majority of bankers, real estate agents and home buyers.

“Not many people know about this yet,” Grueber said. “As people find out about it, there are going to be screams.”

Before the Biggert-Waters Act, the National Flood Insurance Program was federally subsidized. With the program $28 billion in debt, BWA sought to increase premiums to reflect the actual flood risk and do away with the subsidies.

Now homes are required to get an elevation certificate before being sold to establish the elevation of the lowest part of the house, be it the first floor, a crawl space or a basement. That figure is compared to a base flood elevation as determined by the Army Corps of Engineers, which is then used to calculate the insurance premium. In North Bend, ground level is generally about two feet below base flood elevation.

Under the old subsidized program, a house with a basement would pay about $8.10 per $1,000 of value. In other words, a home valued at $100,000 would pay $810 per year, or $67.50 per month. Under Biggert-Waters, that same house will pay around $4,800 a year, or $400 a month.

“The rates when you’re four, five, six feet below flood level go up astronomically,” Grueber said. “Instead of it being an $8 rate (per $1,000 of value), it’s going to be a $45 or $50 rate, whatever it turns out to be depending on how low the basement is.”

The Price to live in North Bend

Chris Witthuhn, a 2003 graduate of North Bend Central, recently moved back to his hometown with his wife Christal. His real estate agent warned him of the new flood insurance rates when they began looking at houses in North Bend this past October.

“If you don’t check into the rates right away, you will be shell shocked in the future,” Witthuhn said.

They found a house with a basement they liked and made an offer.
Before the deal could be finalized, Witthuhn was required to pay $500 for an engineering firm issue an elevation certificate in order to get a flood insurance quote.

“Our quote was pretty ridiculous,” Witthuhn said. “It was a really big deal. We actually wrote it into the contract of our house that if the flood insurance premium was too high that we could back out of the deal. We did that to kind of cover our butt.”

The Witthuhns were required to pay their first year of flood insurance, $2,500, at the time of closing. Like Bosco’s potential buyer, their monthly premium was going to increase their mortgage payment by about 50 percent. Unlike Bosco’s buyer, the Witthuhns decided it was a price they were willing to pay.

“If we wanted to live in North Bend, which we did, we had no other choice,” Chris Witthuhn said.

Property values likely to drop

Many potential buyers are not willing to follow Witthuhn’s footsteps and are taking their housing search – and their money – elsewhere.

“You’re going to continue to see that unless we get this rectified somehow,” said Tim Chapman, a local realtor with NP Dodge. “I’m not a pessimist, but I’m a realist, and that’s what we have to deal with right now.”

To get to a reasonable flood insurance rate, new homes are built on ground that has been elevated above the flood plain. The new library building, the new gymnasium at the high school and Red Brix Hair Chicks downtown are examples of such elevation. Each has its floor about three feet above ground level.

However, for existing homes there is no such option. Many are worried about the effect the new rates could have on North Bend’s housing market. Any house bought with a mortgage or loan from a bank is required to have flood insurance.

“It’s going to make it nearly impossible to sell a house if they have to take out a mortgage on it,” Bosco said. “No. 1, it’s going to lower property values when (buyers) look at the expense of flood insurance. No. 2, if they buy a house with cash they’re putting themselves at the risk of not being able to resell it. Overall, it’s got to lower property values due to that extra expense.”

Witthuhn said he is thankful his seller was willing to drop the price of his house to lessen the blow of the flood insurances sticker shock.

“We were lucky our seller was flexible in his price,” he said. “If he wasn’t flexible, we probably wouldn’t be living here.”

Area real estate agents are making the same observations. Cristy Bloom is a realtor from North Bend with Berkshire Hathaway Real Estate.

“It is pricing homes out of what people can afford,” she said. “I just sold a house for $80,000. Their flood insurance is going to be $2,300 a year. It’s just astronomical. It’s unbelievable. We’re going to have to depreciate the homes because of the cost of flood insurance.”

Chapman, the NP Dodge realtor, said the additional costs are going to be particularly damaging to first-time home buyers, who are often tightly restricted on the amount of money they can pay each month.

“That’s going to create the inability to make an offer on a home for a lot of people,” Chapman said.

Seeking higher ground

Jerry and Ann Halladay sold their house east of North Bend in August. Their selling process was extended when one very interested prospective buyer finally decided the flood insurance was too much.

After looking at lots in and around North Bend, the Halladays decided to build their new house on the bluff four miles north of town where they wouldn’t have to worry about flood insurance.

“Definitely, the higher elevation was a factor,” Ann Halladay said. “If you’re paying $200 a month for flood insurance, why not put that toward your property instead?”

Grueber and Bosco said they have contacted their representatives in Washington about the issues being caused by Biggert-Waters.

There are currently bills in both the House and Senate that would delay the implementation of rate increases for a few years. Unless changes are made, the Biggert-Waters Act could have dire consequences for North Bend’s future.

“No one is going to be able to sell their homes,” Cristy Bloom said. “Everyone is going to end up upside down (owing more than their home is worth) and we’re going to see more foreclosures. It’s not just in North Bend. It’s pretty much everywhere from Columbus through Valley.”

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