GSE Will Buy Loans Despite Flood Insurance Shutdown

Freddie Mac has issued guidance to assure lenders they can continue to originate loans on flood-prone properties despite a temporary shutdown of the National Flood Insurance Program. Freddie requires lenders to continue to perform flood zone determinations and follow normal flood insurance policies, according to the March 29 guidance. The secondary market agency said it will purchase loans if borrowers have completed an application for flood insurance and evidence shows they paid the insurance premium. The Federal Management Emergency Agency's authority to issue and renew flood insurance polices expired March 28 after the Senate failed to pass a NFIP extension. Congress is now on recess until April 12. During this hiatus, FEMA cannot write new flood insurance policies, renew policies or increase coverage. However, it is not a violation of law to originate loans when flood insurance is not available. "You can go ahead and originate and close a loan," said Vicky Vidal of the Mortgage Bankers Association. The MBA associate vice president indicated it is pretty much business as usual. "If the servicer and homeowner have received a renewal notice and pay it, it will be honored and the policy will not lapse," she said.