The flood insurance deadline is causing more nail-biting

Mortgage and housing groups by deadline Friday were pushing for an extension to the National Flood Insurance Program, which was set to expire just before midnight due to the latest budget impasse.

By noon Friday, House of Representatives had passed a spending bill by a vote of 286 to 134. (Update: Senate approval came shortly after the deadline by a vote of 74-24. Suspension preparations have not yet begun due to the possibility of a last-minute postponement.)

The Mortgage Bankers Association of the National Association of Realtors is urging lawmakers to address the issue by passing the Supplemental Appropriations Act of 2024, which contains a provision extending the NFIP through the end of fiscal year 2024 on Sept. 30.

“Importantly, this provision was carefully crafted to be retroactive, avoiding disruption to flood insurance authorities if the House and Senate do not meet tonight’s statutory deadline,” said Bob Brooksmith, president and CEO director of the MBA, in a press release.

The National Association of Realtors also urged the House and Senate to agree on the bill, noting that short-term reauthorizations have been destabilizing and the disruption would be even more severe.

“NAR estimates that a prolonged NFIP lapse could jeopardize 1,300 property sales per day and the recovery of thousands of small businesses and homeowners,” President Kevin Sears said in a press release.

The National Flood Insurance Program would ideally have had annual reauthorizations, but instead has gone through 29 since 2017, according to the brokers association. The market also experienced several brief disruptions due to government shutdowns.

“Short-term extensions and gaps exacerbate uncertainty in real estate markets,” Sears said. “Without access to flood insurance, American families must rely on severely limited federal disaster assistance.”

Lack of flood insurance can disrupt loan origination and performance, with the NFIP disruption preventing first-time policy issuance and renewals occurring during the period. Existing policies continue as long as Federal Emergency Management Agency funds remain available.

The NFIP has bipartisan support, but is a controversial budget line item because of the scope of its costs against the background of increasing disaster risk. The cost of flood insurance has been a challenge for all stakeholders, including private industry and homeowners who may need it in addition to their regular policies.

So while the growth of the market for private flood insurance can help mitigate the impact of a modern fault, it is by no means immune to interference. Private flood insurers have proven inconsistent when it comes to covering a higher-risk market like Florida or Louisiana.

Even countries that were previously less prone to flooding like Vermont and Pennsylvania have been at risk recently, with the latter recently established legislatively mandated task force to deal with the problem.

Mortgage companies have flood coverage responsibilities, and penalties for failing to meet those obligations escalated this year, with Regions Financial paying a $3 million fine that was reportedly the largest ever imposed by the Federal Reserve last year.

Flood insurance is also important to the industry because it can protect mortgage companies from risks they would otherwise be willing to take, a concern that recently came to light in Canada, where a lender has withdrawn from certain markets with exposures. Canada lacks a government flood insurance program, but is considering creating one.