Housing groups receive definitive flood insurance extension

Mortgage and housing groups at deadline Friday were pressing for an extension to the National Flood Insurance Program set to expire just before midnight due to the latest budget impasse and Congress did eventually take action. (See update.)

By noon Friday, the House of Representatives had passed a spending bill in a vote of 286 to 134. (Update: Senate approval occurred shortly after the deadline by a vote of 74-24. Shutdown preparations had not yet kicked in because of the possibility of a last-minute reprieve. The bill extended the NFIP until Sept. 30 of this year.)

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

"Importantly, that provision was carefully crafted to be retroactive, avoiding any disruption in flood insurance authorities should the House and Senate not meet tonight's statutory deadline," said Bob Broeksmit, the MBA's president and CEO, in a press statement.

The National Association of Realtors also pulled for the House and Senate to agree on the bill, noting that short-term reauthorizations have been destabilizing and an interruption would be more so.

"NAR estimates that an extended NFIP lapse could threaten 1,300 property sales per day and the recovery of thousands of small businesses and homeowners," President Kevin Sears said in a press statement.

The National Flood Insurance Program would ideally be have yearly reauthorizations, but instead it's gone through 29 since 2017, according to the Realtors association. The market also has endured several brief cessations in it due to government shutdowns.

"Short-term extensions and lapses exacerbate uncertainty in real estate markets," Sears said. "Without access to flood insurance, American families must rely on federal disaster aid, which is severely limited."

Lack of flood insurance can disrupt originations and loan performance, with a lapse in the NFIP impeding issuance of first-time policies and renewals that come up during the period. Existing policies continue while Federal Emergency Management Agency funds remain available.

The NFIP has bipartisan support but is a contentious item within the budget due to the scope of its expense amid rising disaster risk. Flood insurance costs have been a struggle for all stakeholders, including private industry and homeowners who may need it as a supplement to their regular policies.

So while growth in the market for private flood insurance could help blunt the impact of a contemporary lapse, it's by no means immune to disruption itself. Private flood insurers have proved fickle when it comes to covering a higher risk market like Florida or Louisiana.

Even states that previously have been less flood-prone like Vermont and Pennsylvania have been exposed to risks recently, with the latter recently establishing a legislatively mandated task force to address the issue.

Mortgage companies have responsibilities associated with flood coverage and the enforcement penalties for not keeping up with them escalated this year, with Regions Financial paying a $3 million fine that was reportedly the largest imposed by the Federal Reserve last year.

Flood insurance also is important to the industry in that it can buffer mortgage companies from risks they might otherwise not want to take on, a concern that recently manifested in Canada, where a lender withdrew from certain markets with exposures. Canada lacks a government flood insurance program but is considering the possibility of establishing one.