Just in time for hurricane season, Congress has allowed the National Flood Insurance Program to lapse. The program expired on May 31, 2010 because Congress failed to reach an agreement on an extension before adjourning for the Memorial Day recess.
As of today (June 1, 2010), the NFIP will not have the statutory authority to issue new or renewal policies until Congress reauthorizes the program. This will not affect existing policies, renewal policies within a 30-day grace period, or policies purchased prior to the program’s lapse. Also, FEMA allows buyers to “assume” the seller’s existing policy without having to re-issue it. The purchase requirement for flood insurance may be met with non-NFIP policies; for instance, Lloyd’s of London, Chubb and AIG have offered such insurance, but it can be very expensive and is limited to a certain number of states, with other conditions.
NAR has been working with FEMA, FHA, Fannie, Freddie and the VA to provide guidance for lenders as to the steps they may take to meet flood insurance purchase requirement during an NFIP lapse. With updated guidance in hand, lenders should have the assurances that they need to continue to close loans. FHA has already issued updated guidance. Fannie Mae, Freddie Mac, the VA, and other lending authorities are expected to release guidance shortly.