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Consumers in the market for housing have been patiently waiting for the Federal Reserve to cut interest rates â a move it seems poised to make in September.
But without action from Congress, there could be other changes later this month that make it harder to buy or sell homes in some areas, or repay existing mortgages.
Thatâs because the National Flood Insurance Program â the government-sponsored public insurance program that is the largest flood insurer in the U.S. â must be reauthorized by Sept. 30 to continue issuing new policies or adding coverage to existing policies.
If youâre buying or selling a home, youâll want to avoid late September and early October.
Jaret Seiberg
managing director and financial policy analyst at TD Cowen
Homeownerâs insurance policies typically donât cover flood damage, meaning consumers who want to protect their home and its contents from such perils need a stand-alone flood policy. Mortgage lenders may require applicants to obtain such a policy before closing on the home, depending on the flood risk for the property.
âItâs about the ability to get mortgages in flood zones after September 30,â said Jaret Seiberg, managing director and financial policy analyst at TD Cowen. âWithout the (NFIP) extension, you wonât be able to get a mortgage in an area that requires flood insurance.â
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Congress established the NFIP in 1968 to provide affordable flood insurance coverage. The Biggert-Waters Flood Insurance Reform Act of 2012, which included the NFIP authority, expired on September 30, 2017. Since then, Congress has increased the NFIP authority 30 times â but it has also been extended three times in that time.
âItâs been an issue now for years where the program is going to expire and Congress, (at) the last minute, reauthorizes it,â said Bryan Greene, vice president of policy advocacy at the National Association of Realtors. âWe try to prevent natural disasters, but we always face man-made disasters that we cannot deal with in time.â
What does the program disappear for home sales?
If the NFIP experiences a lapse in its authority, it will not be able to issue new policies, including for borrowers requiring flood insurance or adding coverage to existing policies (including property owners who want to refinance existing mortgages), according to a spokesperson for the Agency Federal Emergency Management, which operates the NFIP.
Itâs possible that home sales will be halted or put on hold until buyers can get flood insurance, said Jeremy Porter, head of climate implications research at the First Street Foundation, a New York-based nonprofit focused on quantifying climate financial risks. change. This may require waiting for Congress to reauthorize the NFIP, or seeking coverage in the private market.
The latter tactic is not easy. âThere are very few private insurance companies that offer flood insurance,â said Daniel Schwarcz, a law professor at the University of Minnesota Law School who focuses on insurance law and regulation.
âThere are several types of special policies out there ⊠but for all intents and purposes,â he said, the NFIP is âthe only option available for flood insurance.â
And if the NFIP lapses, it could make the search for private insurers even more difficult: âIf you break that foundation, the rest of the market doesnât exist,â Seiberg said.
When the program ended from May 31 to July 2, 2010, 6% of real estate agents reported delayed or canceled sales, according to the National Association of Realtors report. In the report, since 2011, it is estimated that a one-month NFIP lapse could result in about 40,000 closures.
âIf youâre buying or selling a home, you want to avoid late September and early October,â says TD Cowenâs Seiberg. âThereâs no need to take the risk that your flood insurance program will disappear when you can close before September 30.â
How homeowners will be affected
The NFIP insures 4.7 million policyholders and protects more than $1.28 trillion in assets. Existing policyholders may be protected by the effects of the terminated NFIP, Seiberg said.
The existing policy will remain in effect and the NFIP will continue to pay claims under the policy during oil spills, according to a FEMA spokeswoman.
If your flood insurance policyâs renewal or expiration date is around September 30, consider renewing it, says Yanjun Liao, an applied microeconomist and fellow at Resources for the Future, a nonprofit research institute in Washington, DC.
âCheck the expiration date and plan ahead,â said Liao, whose research focuses on natural disaster risk management and climate adaptation.
Homeowners who are considering refinancing their existing mortgage may also want to consider timing the September 30 reauthorization in mind, if the lender requires flood insurance coverage.
Why NFIP reauthorization is a âcatch-22â
NFIP has been continuously reauthorized because of the âpotential consequencesâ of limited private insurance available, Schwarcz said.
âWe are in a real catch-22,â said Schwarcz. âWe have a bad program; nobody likes it.
âBut you canât get rid of it because people depend on it without a better alternative, and nobody can agree on a better alternative.â
Critics often point to the price of the policy as a concern.
Until recently, the NFIP had a reputation as a subsidized insurance program, where people in places far from the coast paid for flood insurance for those living in high-risk areas, the Porter First Street Foundation said.
Then in 2021, FEMA implemented Risk Rating 2.0, a new pricing system that will accurately reflect the cost of risk in an area. Homeowners and elected representatives from coastal states have resisted the change because of high premiums.
âAll of a sudden, you go from paying $800 a year to paying thousands of dollars a year for your insurance,â Porter said.
Sen. Bill Cassidy, R-La., spoke in early August about the rising cost of NFIP premiums in Gulf Coast states, and urged Congress to increase the program.
âMy team is working on a bipartisan solution that will restore Risk Rating 2.0, and make flood insurance affordable and accountable again,â Cassidy said in a speech.
Congress is unlikely to let NFIP expire entirely, given the number of homeowners who depend on the program, Seiberg said.
âThe real problem is that the flood insurance program is a financial problem and Congress canât seem to fix it and, instead, what Capitol Hill is doing is just kicking the can down the road,â he said.