Cheat Sheet Q & A:
Today’s question/topic: Flood insurance… This was based on a story we covered recently regarding the Federal Flood Insurance program:
What you're saying is you want the government to subsidize your insurance. Listening to you day by day this does not sound like you. Why should I help pay your flood insurance?
If you cannot afford your home, move.
Bottom Line: Hmm… Where to start… First let’s take the issue at hand. The Federal Government has indeed run a deficit in the Federal Flood Insurance program. The shortfall reached a new high of nearly $24 billion in 2013 as post Hurricane Sandy related claims were paid out. As a result we do have heavily subsidized flood insurance polices. So do I think that we as tax payers should generally have to pay to subsidize flood insurance polices? No, however we’ve already created this mess by allowing the Federal Government to have the heavy hand in flood insurance premiums. So the answer to fix the current problem isn’t easy.
If someone has paid for insurance for decades and never once had a claim how does that enter the category of government subsidies being required for the insurance?
If there is a history of claim activity with certain properties then I'd agree with your premise. Rates should naturally rise if there is claim activity and I wouldn't support other tax payers having to foot the bill for someone to stay under that premise.
You have policies that are skyrocketing in cost without any claim history to balance out problems often in other parts of the country. That is no different than excessive property tax increases that tax people out of their homes or the death tax that can't be afforded by the surviving property. Telling people that they should leave their family home because they can't afford staggering flood insurance increases with no flood claim history is an extremely unfortunate position in my view.
Last year increases in flood zones of 200-300% were common. Increases of up to 1000% were occurring! I don’t see how any homeowner can have a realistic expectation of planning for cost increases of that magnitude, especially without a history of claims. So what do we do?
- The bill that passed Congress in January struck a somewhat reasonable compromise in which increases of up to 18% per year could occur.
That provides at least a reasonable compromise between meaningful increases in insurance premiums, to attempt to catch-up with the shortfall, while providing a level of cost certainty to existing homeowners who use and/or need flood insurance.
It took years and several natural disasters to create the mess. It will also take years and careful diligence to get out of the problem. The answer isn’t to take homeowners who’ve never had a claim and force them out of their homes.
If you have a question or topic you’d like me to address email me: email@example.com
Looking under the hood of your HOA:
Bottom Line: We’re now two years into the housing recovery. You’d think that as the housing market has been turning the corner so would the balance sheets of Home Owners Associations. Well, that’s not the case.
- According to Association Reserves 70% of all HOA’s are still currently underfunded
That’s alarming for two reasons… The obvious, which is that the average HOA isn’t adequately but also that we haven’t made any progress in the last two years. The 70% figure is the same number as 2011 and 2012. This means that as back payments from foreclosed and short sales have come in, and new homeowners who aren’t in distress have moved in, the HOA’s haven’t used the funds to ensure the solvency of the association. This also means that there is a high risk of special assessments, unexpected increases in dues and service cuts with the average HOA.
If you live under an HOA you need to:
- Attend meetings
- Look into the accounting and expenses of the HOA
- Determine whether your HOA is adequately funded with proper reserves for one time expenses that may arise
If you’re considering moving into a community with an HOA:
- Look into the accounting and expenses of the HOA to determine solvency (it’s your right)
- Ask for a history of due increases
- Ask for a history of special assessments
- Interview the board (often we’ll let them do all of the vetting of us) and see how you feel about their decision making capability
Know your grapes and get much cheaper wine:
Bottom Line: Winos rejoice! You may be able to obtain far more wine for your buck without sacrificing on the quality of the wine you enjoy.
The CEO of NakedWines.com (and online wine discounter) said that the key to fiscally savvy wine buying comes from knowing your grapes. He said that most wine buyers frequently over pay for the wine they enjoy. For example he stated that a bottle of wine from the NapaValley will frequently sell for 200% more than a non-Napa vineyard using the same grapes. His suggestion:
- Identify the grapes of your favorite wines
- Search for those same grapes at other vineyards and compare prices.
- Pick a few that you haven’t tried that use the same grapes
He suggests you’ll be pleasantly surprise and you’ll be able to identify the best prices on your favorite wines with compromising.
Reminder for business owners before you file your taxes:
Bottom Line: March 17h is the tax filing deadline for all businesses. There is one last minute detail you should look into prior to filing your taxes if you’re a business owner and you’ll be interested in obtaining personal financing in the next year. Speak to your loan officer first.
A common issue for small business owners in the post “stated income” loan environment is obtaining personal financing. Because most small businesses owners are directly tied the income statements for their businesses, if their small business shows a loss in a given tax year, you personally may show a loss or negligible income for the year as well. It’s an even more important consideration this year.
We’re entering a rising interest rate environment in which you should account for your long term loan needs. Once you file your taxes for 2013, you’re opportunity to obtain funding will be on hold until your taxes are accepted by the IRS. Additionally the income or loss you show in your newly reported taxes will be used as a key metric to determine if you can borrow and how much you can borrow. In other words… If you want to obtain a mortgage or other significant line of credit you’ll want to show income that will support your loan needs. That may mean that you many not want to take certain losses or write-offs that would shrink your taxable income in a way that would prevent you from obtaining a loan.
So talk to your loan officer and if you are going to show a loss or income that would impair your loan worthiness, lock in your financing prior to filing. If your 2013 income statement would improve your loan worthiness wait until after your taxes have been accepted to seek financing.
Small business lending growth indicates job growth may be on the way:
Bottom Line: Small business lending increased by 4% in January vs. the previous January. While it sounds small it’s actually the biggest increase to start a year since 2007. That’s the last January prior to the Great Recession. What’s more is that small business lending is almost always a precursor to expansion and thus hiring.
It’s been well cited and discussed that about two-thirds of newly created jobs will through small businesses during normal economic times. An uptick in small business lending should mean that improved job growth should be forthcoming.