National Flood Insurance Program Lapses

The National Flood Insurance Program expired on March 28, 2010. This important program enables homeowners in flood prone areas to get flood insurance, typically not available from private insurers. Now, the program is not dead, just caught in the dysfunctional political circus that's Washington, DC these days. Federal lawmakers failed to vote through a temporary extension to the Flood Insurance Program before the current authorization lapsed on March 28th. As a result, no new policies can be written until that authority is granted. Congress doesn't return from its Easter recess until April 12th, so that's the earliest it can happen. More information at the FEMA Flood Insurance site.

What is the impact of this failure to extend the authorization? It will be felt primarily by buyers planning to close on a home located in a flood zone between now and the reauthorization of the program. A buyer can't get an NFIP flood policy. The mortgage lender won't close on the loan without it. So the loan won't close.

Thanks, Washington. This is exactly the kind of nuts and bolts "people's work" that doesn't get done when you get into your childish grandstanding.

Comments

[pa]

The Govt wants to remove itself from UNprofitable ventures. FEMA should have given you a foreshadowing of this.

[David Knudsen]

pa, it actually has nothing to do with the government wanting to get out of the FEMA flood insurance business. The issue over the past few years has been lawmakers from hurricane-prone states wanting some type of wind coverage included in the program. Congress has been unable to agree on that, and so keeps doing these temporary stop gap extensions to the current Flood Insurance Program. This extension has just gotten caught up in the ongoing Washington stalemate.

[Ken]

I inquired about this a few years back and was told by my insurance company that federal flood insurance is only for your primary residence. I would assume that's still the case but haven't checked on it recently. If the market is primarily vacation homes then it doesn't really matter if the program is intact or not....

[David Knudsen]

Ken, I don't think that's correct. I do know there are a number of caveats in the program, and difference in reimbursement at replacement cost or depreciated cost whether a house is an owner-occupied primary residence or not. And there may be some differences as to whether your house is in a designated flood zone or not.

[Ken]

I did a little looking into it. Here's a pretty good summary:

http://www.floodsmart.gov/floodsmart/pages/choose_your_policy/policy_rates.jsp#resprefBCX

You can only get replacement cost if it's your primary residence. The flood risk determines your rate but it needs to be your primary residence in all cases. I would think most banks would require a replacement cost policy.