Stop-and-Go on Flood Insurance Leaves Home Owners, Buyers in Limbo

With another short-term NFIP extension on the horizon, it looks like Washington will continue to play politics with the housing market.

It’s déjà vu all over again.

The Senate voted on legislation last week for another short-term extension to the National Flood Insurance Program through May 31, 2012. This could signal the end of congressional efforts for the year to work out House and Senate differences over a 5-year NFIP reform bill, marking the fourth time in as many months that Congress has kicked the can down the road. And making it more difficult for the housing market to get back on its feet.

The latest flood program extension expires Friday, Dec. 16, so the House and Senate have to come to terms on at least a short-term extension this week or it’ll lapse. A lapse would spell trouble for the already struggling housing market, because home owners and buyers in FEMA-designated areas are legally obligated to have flood insurance to qualify for a federally backed mortgage. A lapse would stunt home sales in those regions. According to NATIONAL ASSOCIATION OF REALTORS® survey data, 47,000 home sales were delayed or canceled when the program lapsed in June 2010.

Back to the Senate bill: Sen. David Vitter (R-La.), with an assist from Sen. Mary Landrieu (D-La.), and the consensus of the full Senate, ushered the bill through the Senate even as Congress remains mired in negotiations on a laundry list of year-end measures, including the payroll tax holiday and an extension of unemployment benefits.

Essentially, the flood insurance program has been caught up in broader election year politics between Senate leaders.

Last summer, the House passed a long-term extension of the program as part of a broader reform measure, but has been waiting for the Senate to act. While the Senate Banking Committee passed its version of an NFIP reform bill, with such a crowded legislative schedule, the Senate didn’t have much time to bring up, debate, and vote on the bill before it adjourned.

While unlikely, there’s a remote possibility of some movement on the long-term reform bill before Congress adjourns for the year. The House leadership has proposed to include the House-passed NFIP reform bill as part of a broader package of year-end program and tax extensions. The House will vote on that today. 

However, it’s not clear whether the Senate would go along with the House proposal in its current composition, and unfortunately, any objection to including the NFIP reform bill could spell the end of this last-ditch effort to move that bill before 2012. We’ll soon find out.

Nevertheless, the continual stop-and-go policy for NFIP adopted by Congress in recent months needs to come to an end. Home owners and buyers deserve to know if they’ll be able to get flood insurance. If Congress keeps them guessing about what it’ll do every three to six months when the program is set to expire, the housing market won’t recover as quickly as it needs to.

A long-term, five-year extension of the program is needed so that NFIP will no longer be a bargaining chip in the ongoing game of political brinksmanship.

Do you think Congress will enact a long-term extension of the flood insurance program?