Federal officials are putting fresh pressure on Congress to take action on the National Flood Insurance Program, whose authorization expires at the end of this month, one day before hurricane season begins.
The NFIP has been a political football in Washington for years, particularly because of the unsustainable debt load it took on in the wake of Hurricane Katrina in 2005. There is a broad push to reform the program and put it on a sound financial footing, but competing visions on that reform (including whether to forgive the program’s debts) have stalled legislation.
For now the program remains in business with repeated short-term extensions, though in 2010 it was allowed to lapse for a few weeks. The Federal Emergency Management Agency is warning of serious consequences if that happens again.
“A lapse in the NFIP has a rippling effect. Property owners are unable to complete their mortgage transactions,” said Dave Miller, associate administrator of the Federal Insurance and Mitigation Administration, the FEMA division that runs the flood program, in an interview on Wednesday.
Federal law requires that homes in designated flood-risk areas have flood insurance before a mortgage can be completed. Because the NFIP is effectively the only flood insurance available in the United States, a lapse in the program means home sales can not close in designated flood areas.
Miller cited estimates from the National Association of Realtors that as many as 1,300 real estate closings a day could be affected by a lapse in the program.
According to informal guidance issued by the Federal Reserve in early 2010, during a lapse period lenders can still make loans on properties that are required to have flood insurance, even if that insurance is not available. Companies that administer flood policies on FEMA’s behalf have said they doubt many lenders would take that advice and proceed with loans.
For now the debate appears to be focused on whether to move ahead with reform legislation pending in the U.S. Senate or to simply reauthorize the existing program.
FEMA Administrator Craig Fugate, in an April 17 letter to congressional leaders, asked for a two-year reauthorization.
An insurance industry coalition called SmarterSafer.org condemned that request last week, saying it ignored bipartisan support for actual reform.
“The current NFIP is broken and, without real reform, our communities will be far less safe, our environment will be threatened, and the program will remain billions of dollars in debt to U.S. taxpayers,” the group said in a statement.
Other industry groups are reportedly pressing for reform action as well, hoping the Senate will vote on a pending bill to restructure the program after the U.S. House of Representatives overwhelming passed one last year.
“I see it all over the board, it’s uncertain right now where it’s going to go,” FEMA’s Miller said, adding that he was optimistic – an optimism tempered by the fact that he only recently joined the program and is well aware of its difficult history getting extended.
As of Feb. 29, the NFIP had 5.59 million policies in force nationwide, with a total insured value of $1.267 trillion. Those policies would remain in force even if the authorization for the program lapsed.
From 2006 to 2010, the NFIP paid out $6.21 billion in losses, according to statistics on the program website.