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Anyone in the American Bottom who has a mortgage from a federally regulated or insured lender and that mortgage is secured by a building will have to buy flood insurance a year from now, if things stay on track.
And that insurance may nearly quadruple over current rates.
In August 2007, the Federal Emergency Management Agency notified area leaders that the American Bottom was being remapped for flood risk. The expectation at that time was that the levees protecting the area would be decertified, and the entire area would fall into a high-risk zone.
“There are plenty of high-hazard zones already shown in the three Metro East counties behind the levees,” said David Schein, regional flood insurance liaison for FEMA’s Region 5. “The issue is if the levees get deaccredited - which is supposed to happen next year - the depths of flooding would be much greater. Instead of there being pockets of high-flood hazard area, it will be floodplain all the way to Bluff Road.”
According to Schein, federal law has been required in high-risk areas for the past 34 years.
“Flood insurance is a federal requirement since 1974 anytime improved property - that’s a building - is offered as collateral for a loan from a federally regulated lender or government agency, or for a grant for a building…any bank, savings and loan, credit union, thrift or trust,” Schein said. “It is not Bill’s mortgage company. But Bill’s mortgage company is likely to sell that mortgage to Fannie Mae or Freddie Mac in the secondary market, in which case it becomes a regulated loan. If anybody has a mortgage and that mortgage is secured by a building in the high-risk floodplain, and the mortgage is from a federally regulated or insured lender, flood insurance has been required since 1974.”
That may come as a shock to a great many people. According to Alan Dunstan, chairman of the Madison County Board, nearly 150,000 people live in the American Bottom and only 1 percent of them currently carry flood insurance.
The other problem is cost, says Dunstan. While premiums vary with individual circumstances, www.floodsmart.gov, the official site of the National Flood Insurance Program, estimates that a $100,000 home in a moderate to low-risk zone would currently pay $287 per year for flood insurance including coverage on its contents. However, move that home into a high-risk zone and the premium jumps to $825 for the building alone. Add content coverage and the price jumps to $1,143.
“In low-income areas, this would, of course, be devastating,” said Dunstan.
On the other end of the spectrum, federally backed flood insurance caps at $250,000 for a single-family home. If more than that is owed on the home and it meets the guidelines of the 1974 act, the owner will need to seek additional insurance on the private market.
And businesses aren’t exempt. The same requirements apply to non-residential property as well. According to floodsmart.gov, a half-million-dollar building with a half million dollars worth of contents - whether that be supplies, inventory or equipment - will see a premium jump from $4,736 to $11,237 per year. And FEMA caps its insurance coverage for non-residential property at the $500,000 level. Anything more will require the owner to go onto the private market.
Dunstan says he’s had a good working relationship with the U.S. Army Corps of Engineers. The Corps’ role is to certify or decertify the levees based on its determination of the levee’s ability to withstand a 100-year or 500-year flood. Dunstan says Southwestern Illinois leaders have been working closely with the Corps with a goal toward fixing the problems as fast as possible. The region’s relationship with FEMA, however, has not been so congenial.
“One thing that I had an argument with FEMA on,” said Dunstan, “is they had this attitude that we’re putting our heads in the sand and not identifying the problem. That’s not right. We understand we have a problem, but we want time to fix the problem before the maps become permanent. There are people out there who simply can’t afford the flood insurance. I think if you’re living on property protected by a levee, you should have flood insurance - but I don’t want to make it mandatory because it will become an unfair burden to those people. That’s all I’ve been trying to tell FEMA,” he added.
That argument has not done much to persuade FEMA. Schein said FEMA’s responsibility is to study the risk and communicate the risk so that local officials, business owners and homeowners can make informed decisions to protect themselves.
“Poor people are the ones who need insurance the most,” Schein said. “Bill Gates doesn’t need insurance. It’s the folks who can least afford to be damaged by flood who need insurance. After a flood, very few people recover without it. Even federal disaster assistance doesn’t come close to making people whole.”
In June, FEMA released preliminary maps showing the new high-risk areas. Those maps are scheduled to become official in August 2009. Area leaders have been working two tracks to try to impact this timetable.
Last spring, the East-West Gateway Council of Governments submitted an application to FEMA for the area to be designated an AR or restoration zone. If the area were to be designated an AR zone rather than a high-risk zone, flood insurance would still be mandatory and it would still be much higher than current rates - but not as high as under the high-risk designation. Dunstan said they’ve done everything they can to get the AR zone designation, but Schein was not too encouraging.
“The AR zone is a complex award given to local governments who have to assure us that they’re moving toward levee restoration,” said Schein. “That’s what the R means -levee restoration - and they have to be able to document that the area is already heavily developed with very little developable space.”
The other avenue that’s being pursued is congressional legislation commonly referred to as the Costello-Durbin amendment. If passed, it would delay the implementation of the new FEMA maps until the Missouri side of the metro area has been remapped as well. It’s estimated that that could take two years or more; and in the meantime, the push would be on to bring the levees up to the 100-year certification level and stave off the insurance mandate. This bill, however, has not passed and Congress is now in recess.
Without the amendment, the maps will take effect next August and people will begin receiving notifications from the mortgage holders, according to Dunstan. This concerns him.
“So the bottom line is that if you have a federally backed mortgage, you’re going to have to have flood insurance,” Dunstan said. “Let’s say a lot of people would be forced out. Well, who’s going to come in and buy? Why would you buy a home down there where you have to have flood insurance? Why wouldn’t you buy above the bluff where you don’t need flood insurance? There are a lot of issues here.”
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