Last week, after the highly-publicized debt ceiling debate ended (for now), Congress blew out of Washington and began an early August recess. But for many Americans, the sound of crickets on Capitol Hill is cause for alarm. While lawmakers are off enjoying their summer sabbatical, time is running out to resolve a number of critical issues. One of the most troubling for U.S. home owners is the expiration of the National Flood Insurance Program (NFIP) on Sept. 30, 2011.
The NFIP, created by Congress in 1968 and run by FEMA, provides flood insurance to 5.6 million property owners in more than 21,000 communities nationwide. With no private market solution — except for homes valued at more than $1 million, according to the General Accountability Office — the NFIP was established to provide an insurance alternative to taxpayer-funded disaster assistance. Most owners in participating communities pay a risk-based premium to insure their properties and taxpayers are off the hook in the case of a natural disaster. Sounds like a win-win, right?
So what’s the issue?
Critics of the NFIP argue that the program enables and encourages people to purchase properties in high-risk and hurricane-prone areas. But the reality is that flood disasters have been declared in every state over the past 20 years and more than 98% of NFIP policies were purchased in non-coastal regions. See more flood insurance myths.
Other criticisms address the program’s current loan balance of nearly $18 billion. But historically, the program has generated enough revenue to pay for itself or quickly repay a short-term loan with interest to the U.S. Treasury. The current balance is a result of Hurricane Katrina, a natural disaster that rocked the nation like no other in our time. (FEMA has been paying down the loan and compensating taxpayers with interest, but because it can’t assure there’ll never be another Katrina, Congress is considering reforms to generate $4 billion more to accelerate the payoff.)
Despite their flawed arguments, NFIP opponents have prevented the program’s long-term reauthorization. Since September of 2008, Congress has approved nine NFIP extensions and allowed five lapses, each time injecting additional uncertainty into the already shaky U.S. housing market. That’s because in the FEMA-designated areas, lenders are legally obligated to require that home buyers purchase flood insurance before obtaining a federally backed mortgage. According to NATIONAL ASSOCIATION OF REALTORS® survey data, 47,000 home sales were delayed or canceled during a lapse of the NFIP in June of 2010.
Home ownership isn’t a game, so why is Congress playing chicken with NFIP deadlines? Real estate markets are a crucial component of the U.S. economy, but their recovery requires certainty. To help recharge the market, Congress must display dedication to the long-term availability of affordable flood insurance by reauthorizing the NFIP for a full 5 years when they reconvene in September.
To send a letter asking your senator to reauthorize the NFIP for five years, click here.
What do you think about the need for a national flood insurance program?