The National Flood Insurance Program’s authorization to issue new flood insurance contracts will expire on Sept. 30 unless Congress votes to extend it.
Congress has been unable to enact a long-term extension of parts of the program. Traditionally an extension of the authorization to write new insurance contracts has been included in short-term and end-of-year appropriations measures.
Unfortunately Congress has not enacted any of he FY25 spending measures and the House and Senate have left for their traditional August recess. They will return after Labor Day and will have to tackle them immediately. If not, large parts of the federal government could shut down.
The need to act on appropriations may make it hard for Congress to focus on the NFIP, even though the authorization for parts of the NFIP will expire at the same time. If that occurs, the Congressional Research Service said that flood insurance contracts entered into before the expiration would continue until the end of their policy term of one year. In addition, the authority for the NFIP to borrow funds from the U.S. Treasury will be reduced from $30.425 billion to $1 billion.
Congress could solve the problem by enacting a long-term NFIP reauthorization. Many members have introduced legislation to do that and hearings have been held, but Congress has not acted on any of the long-term bills. Since the end of FY2017, 30 short-term NFIP reauthorizations have been enacted, according to CRS.
Any expiration of the NFIP to issue new contracts would have serious consequences for the real estate market, according to CRS.
“By law or regulation, federal agencies, federally regulated lending institutions, and government-sponsored enterprises must require certain property owners to purchase flood insurance as a condition of any mortgage that these entities make, guarantee, or purchase,” CRS said. Property owners are required to purchase flood insurance if their property is identified as being in a Special Flood Hazard Area and is in a community that participates in the NFIP.
They may have to turn to private insurers to do so. As previously reported rules of the Farm Credit Administration, FDIC, Federal Reserve Board, National Credit Union Administration, and Comptroller of the Currency authorize their regulated entities to use private flood insurance, and rules of the Department of Housing and Urban Development authorize the use of private flood insurance with mortgage loans insured by the Federal Housing Administration. Fannie Mae and Freddie Mac also permit the use of private flood insurance that meets their requirements. Although the private insurance market is growing, most property is insured through the NFIP.
In past NFIP lapses, borrowers were not able to purchase flood insurance to close, renew or increase loans secured by property that required flood insurance. The CRS estimated that during a lapse in June 2010, each day more than 1,400 home sale closings were canceled or delayed. That represents more than 40,000 sales each month.
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