WASHINGTON, June 10 (TNSrep) — The Congressional Research Service published the following Legal Sidebar white paper on National Flood Insurance Program Disqualifications (#IN10835) on June 9, 2022by Diane P. Hornflood insurance and emergency management analyst.
Here are excerpts:
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This overview provides a brief overview of what would happen if the National Flood Insurance Program (NFIP) were not reauthorized by September 30, 2022and let expire.
Expiration of some NFIP permissions
The National Flood Insurance Program (NFIP) is authorized by the National Flood Insurance Act of 1968 (Title XIII of PL 90-448, as amended, 42 USC Sec.Sec.4001 et seq.). The NFIP does not contain a single comprehensive expiration, termination, or sunset provision for the entire program. Instead, the NFIP has several different legal provisions that are tied to the expiration of key program elements.
Since the end of fiscal year 2017, 21 short-term NFIP reauthorizations have been enacted. These reauthorizations are listed in Table 1. The NFIP is currently authorized until September 30, 2022.
Unless reauthorized or modified by Congressthe following will happen on September 30, 2022:
* Authority to provide new flood insurance contracts will expire. Flood insurance contracts entered into before expiry would continue until the end of their one-year term of insurance.
* The authority of the NFIP to borrow funds from the Treasury will be reduced by $30.425 billion at $1 billion.
Other program activities would remain technically permitted, such as issuing flood mitigation assistance grants. However, the expiration of the main authorizations listed above would have potentially significant impacts on the remaining activities of the NFIP.
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Table 1. Short-term NFIP extensions since the end of fiscal year 2017
Source: CRS analysis of the legislation.
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In the event of expiry of the authorization on or after September 30, 2022and the borrowing power is reduced to $1 billion, FEMA would continue to adjust and pay claims as premium dollars come into the National Flood Insurance Fund (NFIF) and reserve funds. If the funds available to pay claims should run out, claims would have to wait until sufficient premiums have been received to pay them, unless Congress were to allocate additional funds to the NFIP to pay claims or increase the borrowing limit.
The NFIP is the primary source of flood insurance coverage for residential properties in United States. The NFIP has nearly 5 million flood insurance policies offering more than $1.3 trillion in coverage, with 22,534 communities in 56 participating states and jurisdictions. The program collects approximately $4.6 billion in premium income and annual fees.
The cancellation of $16 billion of NFIP debt in November 2017 (PL 115-72) had no effect on NFIP clearance. The reauthorization of NFIP has no impact on the introduction of Risk Rating 2.0.
Mandatory purchase requirement
The expiry of the NFIP’s authority to provide new flood insurance contracts has potentially significant implications due to the mandatory purchase requirement (MPR). By law or regulation, federal agencies, federally regulated lending institutions, and government-sponsored businesses must require certain property owners to carry flood insurance as a condition of any mortgage these entities incur, guarantee, or purchase. . Homeowners, both residential and commercial, are required to carry flood insurance if their property is identified as being subject to a flood. Flood zone (SFHA, which is equivalent to having an estimated flood risk of 1% or more each year) and is in a community that participates in the NFIP. Without flood insurance available, real estate transactions in an SFHA would potentially be significantly hampered.
In the Biggert-Waters Flood Insurance Reform Act of 2012 (Title II of PL 112-141), Congress explicitly authorized federal agencies to accept private flood insurance to fulfill the MPR if the private flood insurance met the conditions defined by law. Although the market for private flood insurance is growing, MPR is still generally covered by NFIP coverage. FEMA does not enforce MPR, but lenders must maintain their regulatory requirements for an expiration period, including enforcement of MPR.
Past NFIP Disqualifications
The NFIP was extended 17 times between 2008 and 2012, and expired 4 times: March 1 to March 2, 2010; March 29 to April 15, 2010; June 1 to July 2, 2010; and October 1 to October 5, 2011. In most cases, when the NFIP has expired, Congress retroactively reauthorized the NFIP. In 2018, PL 115-120 also authorized FEMA to honor all transactions related to the policy accepted during the expiration period of the NFIP. During these NFIP lapses, the FDIC issued directives to credit institutions, and the Federal Reserve also issued informal guidelines for lenders. In addition, FEMA provided guidance for the Write-Your-Own (WYO) program, where private insurance companies are paid to write and administer NFIP policies.
In the past, borrowers were unable to obtain flood insurance to close, renew or increase property-secured loans in an SFHA until the NFIP was re-approved. During the period of time June 2010, estimates suggest that more than 1,400 home sales closings were canceled or delayed each day, which amounts to more than 40,000 sales per month. These figures applied to residential properties, but commercial properties were also affected by the NFIP forfeiture. In addition, the largest insurer WYO left the NFIP in 2011, apparently due to the administrative burden associated with very short-term re-authorizations and authorization interruptions. Although no detailed analysis of the NFIP forfeitures in 2010 and 2011 was undertaken, the economic impact could have been broader than the reported effects on the national real estate market.
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The white paper is published at: https://crsreports.congress.gov/product/pdf/IN/IN10835