Congress Fixes Long-Running Flood Insurance Logjam
WASHINGTON-Congress has re-authorized the National Flood Insurance Program after a month-long lapse that has tied up closings on many homes in flood-prone areas.
A legislative logjam shut down the flood insurance program on June 1 as Republicans and Democrats continued to fight over extensions of unemployment benefits and economic stimulus programs.
The logjam finally broke just before the July 4 recess and the House and Senate passed a stand-alone flood insurance bill.
The bill (H.R. 5569) clears the way for the Federal Emergency Management Agency to approve new flood insurance policies through Sept. 30.
The president signed the measure on July 2.
The NFIP re-authorization bill also allows FEMA to approve flood insurance applications and renewals that have been pending since the June 1 shutdown.
Congress has allowed the flood insurance program to lapse three times this year. And lenders and other settlement service providers should be prepared for another hiatus this fall.
"This is yet another short-term fix, as Congress has once again kicked the can down the road to Sept. 30," said Brian Marino, president-elect of the National Association of Professional Insurance Agents.
The National Association of Realtors estimated that 1,400 sales were delayed each day during the lapse in the flood insurance program.
Due to numerous lapses, Fannie Mae, Freddie Mac and the Federal Housing Administration have notified lenders that they will approve new mortgages when flood insurance policies are not available.
The agencies simply require borrowers to complete a flood insurance application and produce a check for the premiums at closing.
Some lenders are willing to accept this procedure and go to closing, but others don't want to take the chance. In terms of lender acceptance, the results have been "mixed," one expert said.
Congress passed another bill just before the recess to prevent homebuyers expecting a tax credit from being disqualified because of closing delays.
The bill (H.R. 5623) extends the closing deadline for the homebuyer's tax credit program by three months to Sept. 30. Originally, homebuyers who signed a sales contract by April 30 had until June 30 to close and qualify for the tax credit.
The Realtors estimated up to 180,000 buyers could have missed the June 30 deadline and lost the tax credit-$8,500 for first-time homebuyers and $6,500 for repeat buyers.
President Barack Obama signed the closing extension bill into law, along with the flood insurance bill.