A new housing market disruption is lurking on Capitol Hill.
The looming threat is the Sept. 30 expiration of the National Flood Insurance Program, the primary means by which millions of homeowners protect their finances from devastating downpours.
Housing, banking and insurance industry groups are beginning to raise the alarm that the NFIP will be collateral damage in a potential government shutdown.
“We are very concerned about the NFIP lapsing on Sept. 30,” Jimi Grande, senior vice president at the National Association of Mutual Insurance Companies, told MM.
A lapse wouldprohibit the NFIP from issuing new policies that prospective homebuyers and their lenders need to close sales. The National Association of Realtors estimates it could threaten 1,300 property transactions per day.
The problem wouldn’t be that the NFIP runs out of money. It collects premiums and borrows from the Treasury Department. But Congress in recent years has synced up the NFIP’s authorization deadline with the expiration of government funding. So an appropriations train wreck could derail the program, just in time for hurricane season.
American Bankers Association spokesperson Blair Bernsteinwarned it could “cause many loan closings in high-risk areas to be delayed or otherwise complicated.” SmarterSafer Executive Director Chris Brown — who leads a coalition focused on natural disaster policy — said it would “only result in increased uncertainty for property owners, renters, and housing and insurance markets.”
“Even if it’s a short-term lapse, that’s just one more point of friction in what’s already a difficult housing market and difficult mortgage market,” Mortgage Bankers Association senior vice president Bill Killmer told MM.
Up to this point, the NFIP’s ride alongside government funding has created some stability for one of the most politically fraught federal programs. The last time Congress enacted a long-term reauthorization was 2012. It’s gotten 25 short-term extensions since 2017.
Lawmakers have been unable to pass any meaningful changes to the NFIP in several years amid fierce disagreements over how to ensure premiums match real flood risks while maintaining affordability.
FEMA, which operates the NFIP, took matters in its own hands in 2021. It revamped how it calculates rates in a bid to more accurately reflect risks for individual properties. Agency officials argue it reduces cross-subsidization among homeowners. Coastal lawmakers complain that it’s raising housing costs for many, and they want to intervene.
So any effort to decouple the NFIP from government funding is likely to be contentious. Rep. Warren Davidson (R-Ohio), who chairs a housing and insurance subcommittee, has unsuccessfully floated a bill that would extend the NFIP through the end of next year. It failed to get a committee vote.
One big thing working in the housing market’s favor (at least in the short term): Senate Majority Leader Chuck Schumer (D-N.Y.) and House Majority Leader Steve Scalise (R-La.) represent states where flood policy is an important political concern. Reps. Patrick McHenry (R-N.C.) and Garret Graves (R-La.), two key deputies for Speaker Kevin McCarthy (R-Calif.), are also flood-fight veterans. Schumer and McCarthy have floated a stopgap spending bill through early December.
Expect them to make a go of avoiding a Washington-made economic disaster — at least when it comes to flood insurance.
“Congress must ensure that coverage does not lapse and I fully expect that we will secure an extension so that it doesn’t,” Rep. Andrew Garbarino, a New York Republican, told MM. “Homeowners in flood areas, including the South Shore of Long Island, must continue to be protected.”