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Transcript: The Flood Insurance Mandatory Purchase Requirement{Intro Music}[Mark Peterson] I'm Mark Peterson from FEMA external affairs [Cassie Ringsdorf] and I'm Cassie Ringsdorf from FEMA External Affairs and this is the podcast. [Mark Peterson] You know, Cassie in External Affairs we get a lot of questions from the public, from the media and from congressional offices and you know, it seems like there's one aspect of the national flood insurance program that really drives a lot of these questions and it kind of relates back to this concept of the mandatory purchase requirement. This idea that if you are in a high risk of flood plain then you're required to buy flood insurance, but if you're out you don't have that requirement. So some of the questions that we receive are things like, you know, why is FEMA requiring this insurance, you know, I've never flooded before [Cassie Ringsdorf] or nobody told me to buy it. Then I flooded and lost everything. [Mark Peterson] Yeah. And also as the maps change, as FEMA goes about redrafting the maps, we also get questions like why is FEMA mapping me into this area? Or why did FEMA map me out? And then potentially I flooded later. So I wanted to get a sense of exactly what we're talking about in a real community with real homes and real mortgages when we talk about this high risk area. I wanted to see for myself what the difference is between an area that you have to buy flood insurance or required to an area that you don't have to buy flood insurance as a condition of this mortgage. So I called the person that I know knows more than anybody about flood insurance. David Schein. [Mark Peterson] {Wind noise} David, thank you for meeting, sir. [Mark Peterson] David recently retired from FEMA where he spent most, if not all of his 30 plus year career in the national flood insurance program. He is a walking, talking flood insurance guru. He's so dedicated to the program and its merits that even his license plate literally is an homage to flood risk management. [Mark Peterson] So where we're standing right now is in Des Plaines, Illinois and we're right along the Des Plaines river, which kind of runs right in between. [David Schein] Loops right around us. [Mark Peterson] Sure. A forest preserve on one side. And then here on the west side of the river, we're looking at, um, worse than standing in a cul de sac, and this is a community, it's kind of an average suburb, the average suburb of Chicago. But where we're standing right now is the area of one percent annual chance flood. As it stands right now, these people here who still have mortgages because of where they're located in and how it's depicted on the flood insurance rate map, they what… [David Schein]if they have a mortgage from a federally regulated lender and that mortgage is secured by their home, which is insurable under the flood insurance program in a community that participates in the program as a city of displaying does flood insurance is required. There's no if, ands, or buts about it. If all those trip wires, all those triggers are met. Now some of these homes are probably paid for it and don't have a mortgage. There's no requirement that they have it, but I assure you that they keep their fire insurance, even though they don't have a mortgage, they should also keep their flood because the risk of flood over that 30 year mortgage is three times the risk of fire. [Mark Peterson] So you know, let's back up a little bit. Let's talk about a couple of facts to start us off. First floods are the most prevalent and most costly natural disaster in the US and people love the water, [Cassie Ringsdorf] but they also love to live near the water. [Mark Peterson] Right? And there are pretty much water hazards everywhere. And also people generally buy homes with mortgages and generally mortgages are regulated in some way by the federal government. And finally, Congress believes that if there is a risk and we know about it and the federal government is in some way involved either regulating or backing, then we should take steps to protect against that risk. [Mark Peterson] {Wind Noise} So all right, so this is a special flood hazard area. We call it a lot of things, call it the one percent annual chance, we call it the higher risk a floodplain, but all of that to say that this is the area we're standing at right now, where mortgage companies would ultimately require purchase flood insurance to go along with the sale that is backed by a federally backed mortgage. [David Schein] If the. It's not the loan, the trigger, it's not the lenders relationship with the federal government that makes it hard to designate alone. It's the lender's relationships, so not only a federally backed mortgage – VA, FHA, SBA, but a conventional mortgage like I've got. I'm not VA, FHA, SBA – I’m conventional, that requires flood insurance and a review of the floodplain map just like a federally backed mortgage because the lender is backed by the federal. [Mark Peterson] I see what you're saying, [Mark Peterson] Cassie, How about we look at a little bit of the history of the national flood insurance program, [Cassie Ringsdorf] so in 1968, Congress for various reasons felt that it was important to help protect against the financial losses associated with floods. So they created the national flood insurance program. Fifty years later, the program has evolved. Congress also felt that if the federal government was backing and regulating lenders for various financial products like mortgages, there should be some way to protect them from this huge risk, so they legislated mandatory purchase requirement. [Mark Peterson] So here's the most important point about that requirement. It says that if you live in a high risk area as designated by the flood insurance rate map and you have a federally regulated loan, then you have to buy flood insurance as a condition of that loan. [Cassie Ringsdorf] The 93 mid-west floods happened, so congress decided to put some teeth behind that requirement. They legislated a series of fines to lenders who did not appropriately require flood insurance for loans in these areas. Since then, industries have evolved. They read the flood maps that FEMA created and they help lenders identify who is and who isn't in the flood risk area. [Mark Peterson] And that makes a lot of sense. Why have a mandatory purchase requirement if you don't have consequences for not following that requirement. And, and also, you know, we're talking about people's livelihood here. We were talking about their homes. So we want to make sure that those lenders are appropriately informing them of the risk so you know, what are we really talking about here when we're talking about this zone or this area, uh, that where there is this mandatory purchase requirement and you know, the truth is what it really amounts to is an elevation. It is a specific elevation where if the lowest part of your structure is above this elevation, then you don't have to buy flood insurance as a condition of this mortgage. But if your structure is below that specific elevation, then you do have to buy flood insurance as a condition of a federally regulated loan or mortgage. But you can imagine that we're not talking about perfectly flat areas. There's varying degrees of elevation within that zone. And of course varying levels of risk [David Schein] when you're in the one percent annual chance flood. The only place that statement is accurate is right at the limit of the flood plain. Here you're, you're in the 10 year flood plain. It floods to three times a year. So we have to remember this statistic. Part of this is the one percent only applies at the limit to the flood plain away from the river. As you get closer to the river, you're getting into the annual flood plain, the hundred percent chance no such thing, but you got to bear that in mind. [Mark Peterson] where we're standing right now, we can see the water 50 yards away probably and a, you know, as we look at the map, would that, that data set that people are making those decisions off of whether to buy flood insurance or not or whether the banks are requiring the punch or not. I mean we're talking about like the line itself is really where we're talking about that one percent chance. As you get closer to the water source, greater chance [David Schein] of course. Absolutely, they increase statistically. [Cassie Ringsdorf] But to a homeowner it's just not that simple. It's actually pretty confusing. [Mark Peterson] Yeah, and it's made even more confusing by the fact that when a bank tells you maybe you don't have to buy flood insurance as a condition of the mortgage, you think, well then maybe the risk isn't there, but in reality the risk, there's still risk even though you aren't designated in the mandatory purchase area. [Mark Peterson] So it seems like we're right here, right near the water, 50 yards away, and it's very flat and it continues very flat west, uh, which is sort of in that high risk. [David Schein] Actually. It gets lower when you get further away from the river. It's called the natural levee because the river's been depositing sediment right by it's short for hundreds of years. [Mark Peterson] So, and then those specific elevations are depicted on the map, but we're very close. It seems intuitive that you would look at a water hazard and go probably be a smart idea to buy flood insurance. [David Schein] You would hope. [Mark Peterson] But the map is ultimately controlling that mandatory purchase. So as we get further inland, and maybe a second, we'll walk down to an area where you know, the trigger stops on the line yet, what's the difference? [David Schein] The line saying, yes, you have to have flood insurance is actually not a topographic feature. It's not a waterfall, it's not an escarpment, but people have that in their mind. It is a threat stops here. The line that represents your quote in or out is actually a zone of varying statistical probability. That's a lot different than saying, oh, there's a waterfall right here. Unfortunately we've. We've trained our customer to believe that the risk stops here because that's where the mandatory purchase requirement and we can always do better but can do better conveying the risk. [Mark Peterson] Before I said goodbye to David, I wanted to see if we could find the actual line in this neighborhood that depicts the high risk flood zone and the low risk flood zone and then from there I wanted to see if we could talk about what it means for homeowners if they're located in the low risk zone. [Mark Peterson] So we kind of in theory located exactly where the line sits. So its not that far, maybe I don't know, a quarter mile from where we were standing before and it doesn't look. It looks the same. [David Schein] Looks exactly the same. [Mark Peterson] outside of the mandatory purchase area, so when you cross that line, while you don't have that requirement, you can still buy flood insurance and so what happens to the policy if you want to buy that policy outside, what's the consequence of not being in a special flood hazard area? [David Schein] Well, it makes it a generally a much less expensive. Certainly. Ah, if the building's been there for a long time, the structure of flood insurance premium is complex, but the threat and risk is complex as well. [Mark Peterson] It certainly doesn't end it that line outside of the … when we used to call the hundred year flood zone, the one percent annual chance, again, lots of different names. We call that other area, the 500 year or the point two percent annual chance. I mean talking to talk to me about those when we call it the percentage chance. How has that changed over the time that you worked with FEMA in communicating that risk? [David Schein] Every few years we look at ourselves, a 360 degree review. And how, how are we going to make this easier for the customer, the lay person to understand the risk. Well, a, it's always a challenge. We always start out with the hundred year flood plain. Don't say it's a hundred year flood because even though whether channel gets it wrong and says, ah, [Mark Peterson] they'll say this hasn't happened in 40 years, [David Schein] it doesn't matter. You can hit the lottery two weeks in a row. The fact that you just won the lottery has no impact on your statistical probability of hitting it again. Right? [Cassie Ringsdorf] OK. So the lesson here is that when floods happen, the line on a map is not a protection against a flood, [Mark Peterson] it doesn't represent protection. And while the flood insurance rate map is a tool to determine your risk, and it's also a tool that a bank uses to require flood insurance as a condition of a mortgage. That determination by the bank should not control whether a homeowner who has a choice buys it or not. After all, if a home is not in a high risk area because of the zones, flood insurance can actually be significantly cheaper than in the high risk area. [Cassie Ringsdorf] OK, so ultimately maybe the conversation at a home closing should be a little less along the lines of whether you have to buy flood insurance because the bank is requiring it and more along the lines of whether or not your home is that a risk for flood and whether it makes sense to purchase it to protect yourself. [Mark Peterson] Right? And I think what's evident here is that everybody is at some level of flood risk, whether they're in this mandatory purchase requirement area or not. And so you have to, as a home owner, make the determination that is best for you based on your own risk and your own risk tolerance. And I think the best way to do that is to talk to your insurance agent, you know, talk to them about what's available in your area and what different products make sense for you. [Cassie Ringsdorf] You can also learn more about for insurance or your home falls in a flood insurance rate map by visiting [inaudible] dot gov. {Intro/Outro Music}[Mark Peterson] we've linked to this episode on our FEMA Facebook page, and we invite you to join the conversation in the comments. If you enjoyed this podcast, be sure to subscribe through Google play or the iTunes store. You can even download each episode on FEMA Dot Gov. if you have topic ideas or want to let us know what you think, makes sure to follow us on our social media accounts. We're on Facebook, twitter, and Instagram. ................
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