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Hurricane Helene Exposes Gaps in Flood Insurance 

October 8, 2024

The devastation wrought by Hurricane Helene, particularly in western North Carolina, exposed the stark need for far more robust flood insurance as climate events increase in frequency and severity.

To obtain Federally-backed loans, property owners in Federal Emergency Management Agency (FEMA)-designated flood zones must purchase flood insurance.

• Private insurers do not typically offer flood coverage.
• Instead, FEMA’s National Flood Insurance Program (NFIP) insures ~4.6 million properties across the U.S.

However, FEMA does not consider rain-induced (pluvial) flooding when developing flood maps; instead, it focuses largely on coastal and riverine flooding.

• FEMA flood maps are often characterized as “outdated and inaccurate, failing to depict current flood risk.”
• According to Reuters, FEMA said that approach is set by law and its maps should not be viewed as a prediction of where flooding will occur. "Where it can rain it can flood," FEMA press secretary Daniel Llargues said.
• Reuters further notes that in the region impacted in western North Carolina, “roughly 1 in 200 single-family homes is covered by the NFIP… a far lower level of coverage than can be found in the coastal and riverside neighborhoods the program was designed to serve.”

Why it matters: Insufficient flood insurance coverage will likely result in a hit to property values, significant costs from business interruption, lost rental income, and greater income inequality.

• According to experts interviewed by Politico, “struggles will be most severe in low-income communities where people have little savings and often cannot qualify for credit from banks or low-interest disaster loans from the Small Business Administration.”
• “It’s going to be a mess,” said Donald Hornstein, director of the Center on Climate, Energy, Environment and Economics at the University of North Carolina at Chapel Hill.

What they’re saying: In a Liberty Street Economics blog post, published just two days before Helene hit North Carolina, researchers at the Federal Reserve Bank of New York found that in 2021, over $600 billion in mortgages were originated in areas with high flood risk but no flood map.

• According to Moody’s Analytics, Helene probably caused $15 billion to $26 billion in property damage, and an additional $5 billion to $8 billion in lost economic output.
• Further, Trepp compiled a CMBS loan exposure list for properties within a 50-mile radius of the main metros impacted by Helene, finding that 550 CMBS loans, with a current balance of almost $60 billion, fall within this range.

As noted in CREFC’s Policy and Capital Markets Briefing last week, the House and Senate passed a continuing resolution (CR) on Sept. 25 to keep the government funded through Dec. 20, including a temporary extension for the NFIP.

However, the need for insurance reform remains acute, as evidenced by the impact of increasingly frequent, severe climate events.

• CREFC continues to work with policy makers and other trade groups to identify and advance possible solutions.
• We have also held a number of webinars and panels on the topic of insurance. Please see CREFC Sustainability Presentations for recorded sessions.

Please contact Sairah Burki (sburki@crefc.org) with questions.

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Election Outcome Policy Analysis for CRE

October 8, 2024

Less than a month out, the election outcome remains murky with some Senate candidates pulling away (e.g., Arizona, Montana, and Nevada) and others tightening the race (e.g., Florida, Pennsylvania, and Texas). Meanwhile, the Presidential and House contests continue to be very tight.

Why it matters: Each party has a path to victory, however narrow, for the Presidency, Senate, and House. CREFC has summarized the outcome scenarios below and in greater detail in this linked document.

Key Assumptions: Even though the election outcome is uncertain, there are key assumptions that can help shape the industry’s expectations.

• House and Senate majorities will be narrow: These chambers are currently governed by slim majorities, and few races look to be complete blowouts, so it is unlikely party leaders will have deep margins to pass partisan bills. This means that a handful of members can have the ability to shape, slow, or kill legislation, even in the normally top-down structure of the House.
• The Senate needs 60 votes to do most things: If 41 senators oppose a piece of legislation, they can usually block it with the threat of the filibuster. That is unlikely to change. Certain actions have been reformed to allow for simple majority votes (50+1). Those include, confirming nominees, repealing recent regulations (e.g., the Congressional Review Act “CRA”), and passing certain funding/tax bills via “reconciliation.”
• Regulators don’t always change over immediately: Although the President has more power to remove certain executive appointees at will than when former President Donald Trump took office in 2017, changeover at agencies will depend on term expirations, resignations, and whether the President and the Senate are governed by the same party.

Go deeper: For commercial real estate and multifamily finance, we analyze below some of the key issues for Democratic or Republican sweeps, as well as each presidency in a divided government.

CRE and Multifamily Opportunities and Risks Summary

• Tax: In scenarios in which a party sweeps, tax bills can be passed with simple majorities with reconciliation, which heightens the risk for certain partisan provisions. See analysis page 4 for additional detail.
• Bank Capital: Basel Endgame capital rules are most sensitive to who wins the White House. Under a Harris presidency, we expect the capital rules to be finalized in some form, as Harris would likely veto any Congressional attempt at repeal and appoint regulators more likely to support higher capital requirements. A Trump presidency would likely stall or scrap the Endgame proposal, as Trump could support a repeal via the CRA and appoint regulators skeptical of raising capital requirements.
• Housing and GSE Reform: Trump has indicated he would move to exit the GSEs from conservatorship, likely via administrative action. Harris has not commented on conservatorship, but she could follow the Biden administration and continue to use FHFA to enact various tenant protections or rent controls. Both parties have shown support for creating housing and public/private programs such as the low-income housing tax credits (LIHTCs).
• Regulators: Presidential appointees who win Senate confirmation will be key in shaping the regulatory agenda. Trump has pledged to repeal 10 rules for every new regulation, similar to his previous two-for-one pledge. The FHFA, Department of Housing and Urban Development (HUD), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) would likely see immediate changes in a Trump win. The Fed, FDIC, and SEC would see more gradual changes as terms expire, though SEC chairs often offer their resignation with a change in the presidency.

The bottom line: CREFC will continue to monitor the election developments and inform members on likely policy actions that stem from the election results.

Contact David McCarthy (dmccarthy@crefc.org) with questions. 

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Presidential Election Polling Reveals Tight Race

October 8, 2024

With 28 days left to the Presidential Election, polls in swing states suggest the race for the White House remains a toss-up. This is quite a different scenario from late-July when President Joe Biden was the Democratic Party’s nominee.

The table below notes three key snapshots in the race, the day President Biden dropped out, polling post Labor Day, and today, with less than a month to go.

Vice President Kamala Harris gained 4.2% in the seven swing states from July-September, but her momentum has stalled since and ever so slightly reversed in some states.

• Nevada is the only state where Harris has continued her momentum since September, with a +0.5 % gain. Since then, former President Donald Trump has gained +1.6 % in Georgia, +0.7% in Wisconsin, and + 0.5% in Michigan.
• North Carolina and Arizona have been slight changes to each candidate’s polling, but not enough to measure a change in voter sentiment.
• The most important swing state has always been Pennsylvania due to its 19 electoral college votes, the highest of any swing state. Polling in the state has remained even since September, as the rolling average remains a tie.
• The polling website 538 gives Pennsylvania an 18% chance of determining the winner of the election, demonstrating just how crucial this battleground state is to both campaigns.

Why it matters: As every state’s polling is within the margin of error, the race remains a true toss-up.

• This is different from late-July when Biden was the nominee and Republicans appeared to be clear frontrunners.
• Harris’ candidacy has brought the race back to dead even.

Contact James Montfort (Jmontfort@crefc.org) with any questions.

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