Flood insurance costs are rising down the Jersey Shore

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The New York Times reports that New Jersey's shore residents hit hard by Hurricane Sandy are facing a new problem- the rising cost of flood insurance.

Uncertainty about the future cost of flood protection is hampering the housing recovery in coastal communities hit hardest by Hurricane Sandy.

Premiums for the National Flood Insurance Program are certain to rise in coming years as a result of a Congressional mandate to bring them into line with real risk levels. The question is, by how much?

The Federal Emergency Management Agency is updating flood hazard maps to assess present-day risks, but until the redrawn maps are finalized, and the rates revised, neither homeowners nor mortgage lenders can accurately estimate the affordability of future premiums.

FEMA is also phasing out the subsidized rates granted to policyholders with homes built before local flood maps were first drawn. The agency estimates that about 20 percent of the 5.5 million policyholders receive these subsidies.

The unknowns around flood insurance rates could pose a problem for lenders, especially because, under the terms of the Dodd-Frank Act, they must document a borrower’s ability to repay a mortgage over the life of the loan, said Doug Rossbach, a vice president in charge of the mortgage banking practice at North Highland, a global consulting firm based in Atlanta. “Premiums could go skyrocketing,” he said. “The lender is in a pretty tough spot. How can the lender know if the borrower can afford to stay in the property, or spend the money to elevate that property?”

Once the maps are revised, some coastal property owners who don’t pay for flood insurance may have to. Lenders haven’t necessarily recognized that yet, as Mr. Rossbach recently discovered when he applied to refinance his house in Rumson, N.J. His house flooded during Sandy, and although he hadn’t been in a flood zone before, preliminary map revisions show that he will be. The lender “never asked me about flood insurance,” he said, “because the effective maps don’t show me in a flood zone. But lenders are beginning to pick up on this, and it’s going to make it tougher for the consumer.”

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