Proposed `junk fee' pays for maps most won't need

Nation's Housing

March 05, 2000|By Kenneth Harney

CALL IT A junk fee on your settlement sheet when you buy or refinance a house.

Call it a user's fee or a loan transaction expense.

But do not call it a new federal tax on millions of homebuyers or mortgage applicants because taxpayers don't like to hear about new taxes, especially near April 15.

Call it instead a "license fee." That's the terminology adopted by the Clinton administration in a little-noticed new budget request to Congress. The fee would raise $104 million in the coming year by increasing the expense of a small but mandatory item in virtually all home mortgage and real estate transactions: flood zone certifications.

Although the majority of homes in the United States are not located in 100-year flood zones, federal law requires lenders to obtain a certification to that effect for every property they finance.

The resulting flood certification charge -- often in the $25 to $30 range -- is a standard item on real estate settlement sheets. It is usually wedged in among charges for loan origination, appraisal, credit, document preparation, tax service and other so-called "junk fees" that must be paid to the lender.

Under the new proposal, the specialized firms that lenders contract with to provide flood-hazard certifications would have to pay the federal government $12 per loan to examine flood zone maps. The $12 would be a "license fee" for access to flood zone maps prepared and maintained by the Federal Emergency Management Agency (FEMA).

FEMA runs the National Flood Insurance Program, which collects flood policy premiums from homeowners whose properties are located in coastal and inland flood-prone areas. But according to FEMA, many of its maps need updating, correction, and conversion to digital format from paper.

$900 million cost

In testimony

rr to Congress last year, FEMA Director James L. Witt estimated that the cost of updating and modernizing the agency's flood zone maps would be $900 million.

Currently, he said, about $50 million is spent annually to update maps, financed through flood insurance premiums and fees collected from homeowners who buy or own property in flood hazard areas and must purchase federal flood insurance.

FEMA wants to accelerate the pace of its map modernization program, raising an additional $104 million in revenue by spreading the cost to a wider segment of the public.

According to a FEMA spokeswoman, the $12 fee would be levied on flood hazard certification companies when they sought access to FEMA flood maps in connection with a residential financing or sales transaction.

8.7 million transactions

Although FEMA

rr technical experts were not available to answer questions about specific details of the new levy, in order to raise $104 million during the course of a year, the fee presumably would have to be imposed in connection with approximately 8.7 million transactions.

Unlike the current system, however, consumers buying or refinancing properties nowhere near an actual flood zone could bear a large portion of the expense.

But, argue defenders of the new proposal, consumers would pay higher settlement fees only if the $12 fee were passed along to them by flood zone certification companies and by mortgage lenders.

Either of those voluntarily could decide to absorb all or a portion of the extra cost themselves.

After all, said one Washington trade group official, "lenders have a direct self-interest in accurate maps. They don't want to lose a property [they've loaned money against] to a flood because a FEMA map was outdated."

Altruism unlikely

Is it likely

rr that lenders and certification companies would agree to eat a new cost of doing business imposed on them by the government? Don't bank on it.

As one Virginia mortgage company loan executive put it:

"We cannot operate as a nonprofit institution, doing good works for mankind no matter what the cost. We are either in business or not. We're going to pass every new charge we get hit with directly to the consumer.

"Twelve dollars may not sound like much but multiply that by 500 loans or 5,000 loans and it begins to hurt."

Ultimately the Republican-controlled Congress will have to judge whether imposing new fees on home financing nationwide is the way to fund FEMA's $900 million map modernization program.

The prospects? Murky at best. FEMA's proposal arguably is a user's fee, focusing the cost of providing an essential service on the primary beneficiaries of that service.

On the other hand, say critics, if making accurate, up-to-date flood zone maps is a core function of a federal government agency, shouldn't it be financed like other agency functions, with dollars appropriated by Congress?

Or, as an alternative, why not finance map modernization with a mixture of dollars: additional budget appropriations for FEMA and higher flood insurance premiums for the only taxpayers ever likely to make a flood damage insurance claim -- those who buy property in flood hazard zones.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.