Hurricanes Harvey and Irma have highlighted a nasty problem – the federal government often fails to enforce its own rules when it comes to flood insurance.
Government-backed mortgages in flood-prone areas are required to carry flood insurance. But the government is well aware that homeowners in high-risk areas often don’t carry the insurance they’re supposed to.
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Two years ago, the Federal Emergency Management Agency estimated that half of the 1.5 million homes required to carry flood insurance might not be doing so, according to a Bloomberg Businessweek report. But that’s only an estimate; neither FEMA nor any other government agency actually tracks that data.
“This is a huge blind spot,” Samantha Medlock, a senior advisor on flood insurance policy to President Barack Obama, told Bloomberg Businessweek. Medlock said that many homeowners who let their flood insurance lapse “mistakenly believe that if their luck runs out, the federal government will come in and take care of them.”
Harvey and Irma showed just how dire the problem is. More than 80% of the homeowners in Texas counties hit by Harvey lacked flood insurance, Bloomberg Businessweek reported. In Florida, as many as 43% required to have flood protection didn’t have it. A 2012 University of Pennsylvania study found that homeowners required to carry flood insurance typically stopped paying their premiums after just two to four years.
And mortgage lenders and servicers who should make sure homeowners are keeping their insurance current can be lax, Bloomberg Businessweek reported. When government agencies discover lenders making or renewing loans without requiring necessary flood insurance, the penalties are often laughably light.
That may change in the wake of Harvey and Irma, however.
“So far there hasn’t been enough of a default risk to motivate lenders to do more on their own, voluntarily, but we’re seeing worse and worse events,” Carolyn Kousky of the University of Pennsylvania told Bloomberg Businessweek. “After Harvey, we might see a different kind of response.”
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