The U.S. House of Representatives voted to extend the National Flood Insurance Program this week, drawing praise from the National Association of Realtors.
Congress allowed the program to lapse on June 1 — the same day hurricane season began. Without an extension, the program could issue no new policies, thereby delaying or canceling thousands of home sales across the country. The program has been in debt since 2005’s Hurricane Katrina resulted in $16.1 billion in claims.
As Congress debates how to pay for that debt, it has been passing short-term extensions of the program — seven since September 2008, according to NAR.
"We greatly appreciate that the members of House were sensitive to the plight of thousands of homebuyers whose loans were being held up since this program expired earlier this year," said Vicki Cox Golder, NAR’s president, in a statement.
"The passage of H.R. 5569 is a first step toward helping homebuyers to the closing table. We strongly urge the Senate to speed passage of this important bill."
The bill would extend the program through Sept. 30 and make it retroactive to its expiration on May 31. The U.S. Senate may choose to extend the program by passing the standalone House bill or by passing it as part of a larger bill that could also extend the federal homebuyer tax credit’s closing deadline from June 30 to Sept. 30, according to the Florida Association of Realtors.
The latest lapse in the flood program is the third since the beginning of the year. That Sept. 30 extension for the flood program, if it passes, would get many homeowners past the bulk of the hurricane season, said Sterling Joe Ory, president of the New Orleans Metropolitan Association of Realtors.
"Still, it’s woefully inadequate. It’s analogous to the oil spill: Hurry up and wait. Start and stop, start and stop. It was reported today that (new) home sales fell over 30 percent. We can’t sustain an industry that has the wheels fall off every 30 to 60 days," he said.
At the same time as the association’s members have been dealing with the repercussions of the Gulf oil spill, the program’s expiration has been "catastrophic" for their business, Ory said.
"Every sale that requires flood insurance, and that’s nearly all in the residential homes in the coastal areas of Louisiana, is either delayed or aborted without flood insurance," he said. "There are no provisions in our purchase agreements that extend the date for a sale if flood insurance is unavailable. Every sale that requires a new flood insurance policy is on hold. Every sale."
Earlier this week, Ory sent out a letter to Realtor board presidents across the country to answer a "Call to Action" to demand Congress reinstate the program.
According to the National Association of Realtors, lenders require just over 35 percent of homes in Louisiana and Florida to have flood insurance, the highest percentages in the country. While the association doesn’t have a firm estimate for how many sales are being postponed or delayed, "it’s probably in the thousands per day," said Walter Molony, a NAR spokesman.
Nearly 20,000 communities nationwide — including every state — participate in the program. Policies are sold to property owners in those communities through state-licensed agents and at least 31 private insurance companies. On June 9, one private insurance company, State Farm, announced it was opting out of the program, expressing some frustration with the unpredictability of the program’s re-authorization.
"Since 2002, there have been 11 last-minute reauthorizations of the National Flood Program, and on four occasions the program was allowed to lapse for extended periods of time. These ‘stop/start’ situations require a large company like State Farm to dedicate significant resources to address challenges and coordinate numerous communications with customers, employees and its more than 17,000 agents," the announcement said.
The National Flood Insurance Program was first signed into law in 1968. Disastrous and frequent floods in certain areas meant that private insurers generally did not offer policies against flood loss. The law thus enabled property owners in flood-prone areas to buy insurance, but it wasn’t until Tropical Storm Agnes wreaked havoc along the east coast in the 1972, that some were required to buy it. According to FEMA, no other previous storm had cost the nation more in disaster assistance.
The Flood Disaster Protection Act of 1973 required federal agencies and federally- insured or federally-regulated lenders to require flood insurance on all loans for acquisition or construction of buildings in designated areas in communities that participate in the program, according to FEMA. Termed Special Flood Hazard Areas (SFHAs), these areas are located in floodplains subject to a 1 percent or greater chance of flooding in any given year (i.e. "a 100-year flood").