With Hurricane Season Here, Will Congress Finally Reauthorize Flood Insurance?

The housing market is awash in uncertainty as Congress has yet again left millions of us wondering what fate has in store for the soon-to-expire National Flood Insurance Program.

Update: The Senate today passed a 60-day extension of the National Flood Insurance Program. There’s still a chance for a hiccup. The House must accept the Senate’s 60-day extension bill before it goes on recess next week. Otherwise, the program will shut down.

The day before, Senate Majority Leader Harry Reid (D-Nev.) and Sen. David Vitter (R-La.) struck a deal about the program, that among other things, allows a five-year NFIP reform bill to come to the Senate floor in June.

Reid noted the effect on the housing market when he announced the Senate would take up a five-year bill. “We can’t have these short-term extensions that don’t allow people to do what they need to do,” he said. “Forty-thousand homes a day go through a process where they have to have flood insurance.”

Last Thursday the U.S. House approved yet another short-term extension, through June 30, for the National Flood Insurance Program, which would be the 18th such extension since September 2008. 

Unless the Senate approves the House-passed 30-day extension, the program will lapse, jeopardizing tens of thousands of home sales and some 21,000 U.S. communities that rely on it. Lenders are legally obligated to require that home buyers purchase flood insurance in FEMA-designated areas before they can get a federally backed mortgage.

How ironic that we’re facing yet another lapse just as we approach the official start of hurricane season: June 1.

If you’ve experienced a flood or live in one of the 21,000 communities (every state has experienced flood disasters!), you likely know that the uncertainty surrounding the national flood insurance deadline is Congress’s cruelest form of déjà vu. 

When there’s a lapse, there are housing market repercussions. In June 2010, 47,000 home sales were delayed or canceled, according to NATIONAL ASSOCIATION OF REALTORS® survey data.

But it’s not just the fact of a lapse itself that’s unsettling — it’s that there might be a lapse. There are already reports that some lenders are refusing to make some mortgages and that some policyholders are receiving notices alerting them to the potential coverage lapse. The continuing uncertainty of month-to-month extensions — will they extend? won’t they? — disrupts the housing sector.

Our housing market and economy can’t afford this drag as they move toward recovery. Congress should pass a five-year solution to protect home owners and restore faith in the housing market.

What’s happening in Congress?

According to the Wall Street Journal, the House is now putting pressure on the Senate to pass the short-term extension so that both houses can also agree on support for a five-year reform bill — something they can revisit when they return from their recess.

At a time when, home sales are up and poised for recovery, thanks to low mortgage interest rates, home affordability, and a smaller share of foreclosure inventory, short-term one-offs aren’t “a responsible way to run the [flood] program, especially since 5.6 million home and business owners rely on it,” says NATIONAL ASSOCIATION OF REALTORS® President Moe Veissi.

To maintain the momentum, consumers have to believe they can rely on consistent access to flood insurance.

Do you think that Congress will finally pass a long-term reauthorization?