Flood Insurance Lapse Puts Home Owners, Housing at Risk
Due to heavy rainfall and flooding from Hurricane Irene, residents from North Carolina to Vermont are dealing with serious property damage. Luckily, many home owners are protected through the National Flood Insurance Program (NFIP). However, had the hurricane hit only a month later, news headlines may have been very different.
On Sept. 30, 2011, the NFIP, which provides flood insurance to 5.6 million homes and businesses, will expire. If Congress doesn’t renew the NFIP before Oct. 1, 2011 then 21,000 communities in the United States will be left without an affordable option to protect themselves from flooding. It is not only hurricane-prone regions that will be affected. 97% of the U.S. population lives in a county that has declared a major flood disaster since 1990, and floods have caused more losses than any other natural disaster in the U.S. over the past century.
How does it work?
Some say that the federal government shouldn’t be involved in the business of insurance, citing the fact that the program needed a U.S. Treasury loan to pay for damages caused by Hurricane Katrina. Historically, the NFIP has generated enough revenue from premiums to pay for itself or quickly repay a short-term loan with interest to the Treasury. The program’s current loan balance of nearly $18 billion is a result of Hurricane Katrina. FEMA has been paying down the loan and compensating taxpayers with interest. Because it can’t be assured there’ll never be another Katrina, Congress is considering reforms that would generate $4 billion to accelerate the payoff.
Regardless of the whether the government should or should not be in the insurance business the reality is that there is currently no private-market alternative for homes less than $1 million. Taxpayers will ultimately end up paying the bill via federal disaster assistance if no flood insurance is available.
What happens if the NFIP lapses?
The NFIP has lapsed five times in the past three years. A lapse in June 2010 delayed or cancelled about 47,000 home sales, according to the National Association of REALTORS® (NAR). NAR economists estimate there would be more than 1,300 stalled home sales nationally during each day of a lapse, because home buyers in FEMA-designated areas are required to purchase flood insurance in order to get a federally backed mortgage. Without insurance through the NFIP, buyers in those communities won’t be able to get home loans, and sellers wouldn’t be able to sell their properties, thus causing a paralysis in the housing market.
Another NFIP lapse could have catastrophic effects, not only on home owners who need flood insurance, but also on the already fragile American housing market. The U.S. House of Representatives has already passed a five-year extension for this important program. But the Senate hasn’t approved the legislation.
HouseLogic.com and NAR are calling on the Congress to reauthorize the NFIP before Oct. 1, 2011, in an effort to prevent another lapse in coverage by asking citizens to write letters to their senators. The housing market needs the certainty of long-term access to affordable flood insurance now more than ever. We can’t afford to let the National Flood Insurance Program expire.
To send a letter asking your senator to reauthorize the NFIP for a full five years, click here.