Congress is working to prevent a lapse in the availability of federal flood insurance money by the end of September, a move that could help bolster the fortune of mortgage bankers who fund loans in areas prone to flooding.
The House and Senate are working on similar legislation to reform and extend the National Flood Insurance Program for five years. And it appears the lawmakers are prepared to pass a short-term extension, allowing the Federal Emergency Management Agency to continue issuing new flood policies after Sept. 30.
Meanwhile, it seems that Congress is resigned to seeing the maximum loan limit for federally backed mortgages drop down to $625,500 on Sept. 30.
Congress raised the loan limit on Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 in 2008, following the financial panic when the availability of jumbo loans died up.
“At the end of this month, an extremely modest drop in the conforming loan limit is set to occur,” Rep. Scott Garrett, R-N.J., said at a GSE subcommittee hearing in New York last week. “This will show that private capital can fill that segment of the market and that rates will not skyrocket for those borrowers, as some would have us believe. This will be a good, but small and necessary, first step toward weaning the mortgage market off of full government support.”
The Obama administration has not made any effort to extend the $729,750 loan limit. Earlier this year, Treasury secretary Timothy Geithner said he supports a reduction in the loan limit to $625,500.
However, Rep. Luis Gutierrez, D-Ill., warned last week that going any lower than $625,500 would cause problems for the housing market. He raised objections to a bill proposed by Rep. Judy Biggert, R-Ill., that would eliminate the current $271,050 nationwide floor on the FHA loan limit. Under Housing Subcommittee Chairman Biggert's proposal, the FHA loan limit would be set county by county at 115% of the median house price.
As for the flood legislation, the House passed a five-year flood insurance reform bill in July by a 406-22 vote. Last week, the Senate Banking Committee approved a bipartisan measure to reform the program. That bill phases out subsidized insurance rates for second homes and vacation homes over four years.
It requires lenders to escrow flood insurance payments for all properties that are in flood zones where flood insurance is mandatory.
In cases where properties are newly mapped into a 100-year flood zone, insurance rates will be phased in over four years. Sen. Tim Johnson, D-S.D., said the bill “puts the program on a more fiscally sound path and phases in premium increases.”
The House and Senate flood insurance bills are similar, but there are differences that will have to be ironed out in conference between House and Senate banking committee members.
The National Association of Realtors and other trade groups are concerned there is not enough time to complete the legislative process by Sept. 30.
At the banking committee markup, Sen. David Vitter, R-La., urged Johnson to consider a short-term extension before the expiration data. Passing the multiyear reform bill before Sept. 30 will be an “uphill” effort, he warned.
He also reminded the committee members that Congress allowed the flood insurance program to expire twice last year during a long-running budget fight and FEMA could not issue new insurance policies. “Here we are in the worst economy in a long time and because of those [lapses] in the program a little over a year ago, we were shutting down perfectly good real estate closings,” Vitter said.
