Shaunl | E+ | Getty Images
Homebuyers have been patiently waiting for the Federal Reserve to cut interest rates — a move it appears poised to make in September.
But without action from Congress, there could be another change at the end of this month that will make it temporarily harder to buy or sell a home in some areas or refinance an existing mortgage.
That’s because the National Flood Insurance Program—the government-sponsored public insurance program that is the largest flood insurer in the U.S.—must reapproved as of September 30 continue to issue new policies or increase the coverage of existing policies.
If you are buying or selling a home, you want to avoid late September and early October.
Jared Seiberg
managing director and economic policy analyst at TD Cowen
Homeowners insurance policies typically do not cover flood damage, which means consumers who want to protect their home and its contents from this risk need a stand-alone flood policy. Mortgage lenders may require applicants to obtain such a contract before closing on a home, depending on the risk of flooding for the property.
“This is about being able to get a mortgage in a flood zone after Sept. 30,” said Jaret Seiberg, managing director and economic policy analyst at TD Cowen. “Without one [NFIP] extension, you won’t be able to get a mortgage in any area that requires flood insurance.”
More from Personal Finance:
See what is not covered by flood insurance
How to prevent hurricane damage to your home
People move from cities with poor air quality
Congress established the NFIP in 1968 to provide affordable flood insurance coverage. The Biggert-Waters Flood Insurance Act 2012which included the NFIP authorization, expired on September 30, 2017. Since then, Congress has extended NFIP authorization 30 times — but it’s also been out for a while three times in this period.
“This has been an issue now for many years where the program faces expiration and Congress, [at the] at the last minute, he’s reauthorizing it,” said Bryan Greene, vice president of policy advocacy at the National Association of Realtors. .”
What would the end of program mean for home sales
If the NFIP were to curtail its authority, it would be unable to issue new policies, including to people whose lenders require flood insurance or increase coverage on existing policies (including property owners who want to refinance existing mortgages), according to representative of the Federal Emergency Management Agency, which administers the NFIP.
It’s possible the home sale transaction could be stalled or put on hold until the buyer can get flood insurance, said Jeremy Porter, head of climate impact research at the First Street Foundation, a New York nonprofit that focuses on quantifying climate economic risk. change. This may involve waiting for Congress to reauthorize the NFIP or seeking coverage in the private market.
The last tactic is not easy. “There are very few private insurance companies that offer any kind of flood insurance,” said Daniel Schwarcz, a law professor at the University of Minnesota Law School who focuses on insurance law and regulation.
“There are some very specialized types of policies out there … but for all intents and purposes,” he said, NFIP is “the only available option for flood insurance.”
And if the NFIP is repealed, it could make it more difficult to find a private insurer: “If you eliminate that foundation, the rest of the market isn’t there,” Seiberg said.
When the program ran from May 31 to July 2, 2010, 6% of real estate agents reported a delay or cancellation of a sale; according to in a report by the National Association of Realtors. In that report, as of 2011, he estimated that a one-month lapse of the NFIP could affect about 40,000 closings.
“If you’re buying or selling a home, you want to avoid late September and early October,” said TD Cowen’s Seiberg. “You don’t need to risk your flood insurance plan lapsing when you could be closing before September 30.”
How would homeowners be affected by a bug?
The NFIP insures 4.7 million insured and protects more than $1.28 trillion in assets. Those existing policyholders may be shielded from the effects of an incorrect NFIP, Seiberg said.
Existing policies will remain in effect and NFIP will continue to pay claims under those policies during a lapse, according to the FEMA spokesman.
If your flood insurance policy’s renewal or expiration date is around Sept. 30, try to renew earlier, said Yanjun Liao, an applied microeconomist and fellow at Resources for the Future, a nonprofit research foundation in Washington, DC.
“Check the expiration date and make plans in advance,” said Liao, whose research focuses on natural disaster risk management and climate adaptation.
Homeowners considering refinancing an existing mortgage may also want to weigh the timing with the September 30 reapproval deadline in mind if their lender has required flood insurance coverage.
Why NFIP Reauthorization is a “catch-22”
The NFIP is constantly being reauthorized because of the “potential consequences” of the limited private insurance companies available, Schwarcz said.
“We’re in this real catch-22,” Schwarcz said. “We have a bad schedule, nobody likes it.
“But you can’t get rid of it because people depend on it without a better alternative, and nobody can agree on better alternatives.”
Critics often point to policy pricing as a concern.
Until recently, the NFIP had a reputation as a subsidized insurance program, in which people in places far from the coast paid for flood insurance for those living in high-risk areas, said Porter of the First Street Foundation.
Then, in 2021, FEMA implemented Risk Rating 2.0, a new pricing system that will accurately reflect the cost of an area’s risk. Homeowners and elected representatives of coastal states they pushed back on this change because of how high the premiums were.
“All of a sudden, you go from paying $800 a year to paying thousands of dollars a year for your insurance,” Porter said.
Sen. Bill Cassidy, R-La., spoke out in early August about the rising cost of NFIP insurance premiums in his Gulf Coast state and urged Congress to improve the program.
“My team is working on a bipartisan solution that will undo Risk Rating 2.0 and make flood insurance affordable and accountable again,” Cassidy told the speech.
Congress is unlikely to let the NFIP expire entirely, given the number of homeowners who depend on the program, Seiberg said.
“The real problem is that the flood insurance program is a financial disaster and Congress doesn’t seem capable of fixing it and instead what Capitol Hill is doing is just kicking the can down the road,” he said.
