Time was, water catchment was an immediate disqualifier for many buyers. Of equal concern was lava zones 1 and 2. Today’s buyers are still very focused on privacy and ambiance... and price! In East Hawaii, what they seek is often found in Puna where catchment is the norm and well as they say, lava happens. Rarely do REALTORS® hear complaints about catchment any longer but the confusion about lenders and insurance often eliminates some properties and many buyers from the mix. Technical information regarding lava zones can be found in the USGS website or in a brochure entitled “Volcanic and Seismic Hazards on the Island of Hawaii”. Through what was formerly known as the “State” or HPIA plan, homes can be fully covered up to $350,000. A recent article in the Trib noted a significant increase in HPIA policy premiums. Contrary to the information contained in that article, there are, in fact, affordable alternatives outside excess lines such as Lloyds. Over time, we have lost a significant number of mainstream carriers but other vendors have generally stepped in to fill the gap. Insurance rates will never be as cheap as they are for properties located outside zones 1 & 2 but then, properties cost much less so perhaps it’s a wash. On a different but related subject, the issue of the Fannie Mae exclusion of lava zones 1&2 is far from new. Fannie Mae has excluded these areas for years. Newly excluded are VA loans which are underwritten by Ginne Mae. This is the first instance of a government insured loan excluding areas based on the lava hazard zone. In my mind, the Fannie/Ginnie exclusion issue is a zoning issue and should never have been a lender issue. Lenders are fully covered and protected by insurance. It should be left to our local zoning authorities to determine if these areas are too hazardous for habitation. A recent letter to the Editor was spot on when they called the exclusion redlining. While we do loose lenders every day, the perception that loans are no longer available in zones 1&2 is inaccurate. Because these are the most affordable areas in the State, we need as many lenders as possible to participate so that the buyers who need it most can take advantage of attractive financing. As it is, buyers are often into programs with higher interest rates and a lower loan-to-value. In other words, those who need affordable housing are sometimes forced into inferior programs because Fannie and now, Ginnie programs are not available. Interestingly, lava zones are not site specific. The reality is that poor loan programs and overly expensive insurance could have a devastating affect on property owners. After all, property will not be worth much without loans or insurance.
A previous version of this article that outlines the affected areas is posted on my blog under the basic title of “Go With The Flow”.
Also at www.majormom.com, you’ll find information about affordable insurance carriers as well as a previous response I received from Fannie Mae following a congressional complaint filed by me on this important issue.