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  1. National Flood Insurance Program Extended Through December 16

    By on November 22, 2011

    Once again, Congress passed a short term extension of the National Flood Insurance Program.  This time the program has been extended through December 16, 2011.  The extension was passed prior to the program lapsing, although the program which has been allowed to lapse 11 times since 2002.

    The NFIP is really the only source of flood insurance in the United States.  It was introduced back in 1968 in order to encourage development in areas where the cost of private flood insurance was prohibitive or where flood insurance was totally unavailable (due to the extreme risk of flood).  Private insurers don’t offer flood insurance because of the high risk (because sooner or later, homes built in flood zones will flood).  Some private insurers do act as servicing contractors under the NFIP.

    The big problem here is that when the NFIP lapses, it holds up mortgage closings because no bank will lend on a home in a flood zone that doesn’t have flood insurance.  More than 5.6 million homeowners have flood insurance policies through the NFIP.

    Insurance groups and housing groups have lobbied for a permanent extension of the flood insurance program.  I agree that Congress more or less has no choice but to permanently extend it.  If the program were to vanish, homes in flood areas would be essentially unsalable, and all of these homes were constructed with the understanding that insurance would be available.  This is not a situation where the government is crowding out the private sector. If the NFIP did not exist, there wouldn’t be private insurers clamoring to issue these policies, at least not at prices that anyone could afford. That Congress keeps extending this program on a short term basis seems like a waste of time.

    Category: Mortgage Rates

  2. National Flood Insurance Program Renewed Until November 18, Long Term Deal Still Needed

    By on October 5, 2011

    The House of Representatives passed yet another short-term re-authorization of the National Flood Insurance Program yesterday.  The most recent extension will keep the program going through November 18.  This is just the most recent in a series of short-term extensions to the NFIP. Apparently there are legislative efforts to extend the program for the next five years.

    Generally speaking, the NFIP is the only source of flood insurance in the United States.  It was created in 1968 in an effort to encourage people to build homes in areas where they would not otherwise build because private insurers deemed the risk of flood to be too high.  Private companies are loathe to sell flood insurance due to the high risks involved (generally speaking, houses built in flood zones will eventually flood).  If they were to offer it, chances are that the cost would be prohibitive (some private companies do act as servicing contractors under the NFIP).

    At the same time, no bank will lend on a property in a flood-prone area without flood insurance.  So when the NFIP lapses (as it did last year), it makes it nearly impossible to sell a home in a flood area, and any scheduled sales are held up due to the lack of insurance.  Regardless of whether it makes sense for the government to encourage people to build homes in a potential flood zone is a separate issue, because these houses already exist and are dependent upon the NFP.  This is the system we are largely stuck with.

    In light of this, some groups, such as the National Association of Realtors, are advocating for a long term extension of the NFIP.  In a press release, the NAR stated that “the NAR strongly supports the NFIP and believes that a 5-year extension of the program’s authority to issue flood insurance is essential to a properly functioning real estate market”.

    For once I find myself in agreement with the NAR.  There really is no excuse for Congress not to extend the NFIP as the many real estate transactions are utterly dependent upon it.  Since 2002, the program has been allowed to lapse 11 times, and then retroactively re-authorized.  This is dumb.  This is a problem that needs a permanent solution.

     

     

     

    Category: Mortgage Rates

  3. National Flood Insurance Program Extended 5 Years in House of Representatives

    By on July 19, 2010

    Good news for many homeowners whose closings have been held up due to lack of flood insurance: the House of Representatives passed a bill (H.R. 5114) that would extend the National Flood Insurance Program (NFIP) until 2015.  The NFIP has been extended temporarily several times over the past year, most recently in early July, lapsing at least once.  According to the above article from Mortgage News Daily, over 1200 home sales were delayed or fell through every day the program was lapsed because of borrowers’ inability to get flood insurance, which is required by lenders for homes in flood prone areas.

    The National Flood Insurance Program is the main source of flood insurance in the United States because there are very few private insurers who offer flood insurance. The program would change somewhat under the new legislation, if it passes the Senate:

    • maximum coverage limits would be raised
    • some premiums and deductibles would be increased as the program attempts to recoup some of the losses taken during Katrina
    • renters in flood-prone areas would receive notice of their eligibility to purchase flood insurance

    Flood insurance is being purchased more and more by homeowners outside of flood zones as the severity of recent floods has often affected areas that are outside traditional risk areas.  Most flood damage is not covered by traditional homeowner’s insurance.

    In order for the extension to be made permanent, the legislation will still need to pass the Senate.  We will keep you updated on any developments in this story.

    Category: General

  4. National Flood Insurance Program Extended to September 30th

    By on July 1, 2010

    Amidst all the talk about the first time home buyer tax credit closing date extension, a less talked about but equally important extension was passed by the Senate yesterday.  The National Flood Insurance Program (NFIP),  which had lapsed for a month, was extended to September 30th by the Senate yesterday.

    The National Flood Insurance Program is the primary flood insurer in the United States because very few private insurers offer flood insurance.  The program expired on May 31st because of a lack of funding, and since that time nearly 6 million homeowners in flood plains lacked flood insurance, which is especially problematic as hurricane season approaches.

    Thousands of home sales in flood prone areas were held up because lenders will typically not fund mortgage loans for homes that are in a flood plain that do not have flood insurance.  Because of the lack of private flood insurance, the closings for these homes were held up.  A significant number of these borrowers were also attempting to close in time to claim the first time home buyer tax credit, so for them the absence of flood insurance was particularly troubling.

    The extension is retroactive to whenever a homeowner applied for flood insurance during the suspension of the program.  This is the fifth short term extension of the NFIP over the past year.  Hopefully Congress will permanently fund the program at some point soon, but in the meantime, home sales in flood areas can start moving forward again.

    Have you been affected by the suspension of the NFIP?  Let us know in the comments section below.

    Category: General

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