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FEMA halts national flood-insurance program

Thousands of home sales and mortgage closings that hinge on a borrower’s ability to get federally-backed flood insurance may be disrupted in the wake of a surprise announcement on Wednesday by the Federal Emergency Management Agency (FEMA) that it is halting the national flood-insurance program due to the partial government shutdown. 

FEMA indicated that it was ceasing regular operations of the national flood-insurance program (NFIP), which is the main way Americans in flood-prone areas get insurance. FEMA posted a two-paragraph bulletin on its website about the flood-insurance program, among a list of other notices on programs affected by the government closure.The agency also indicated there would be no other updates for the duration of the shutdown. 

floodprog The announcement came despite the fact that Congress passed and President Donald Trump signed reauthorization legislation last week that would keep the program funded through May 31.

FEMA indicated that existing flood policies in place before midnight Dec. 21 would remain in force and valid regardless of FEMA’s ability to pay claims, but that the program and partners may not issue new contracts for flood insurance. NFIP also will have a limited ability to “issue new policies, issue increased coverage on existing policies, or issue renewal policies contracts for flood insurance,” according to the bulletin.

As for existing policies, FEMA’s bulletin said: “The NFIP will process and pay claims under those policies as usual from the National Flood Insurance Fund and the National Flood Insurance Reserve Fund until depleting these funds, but will not have authority to borrow any additional funds from the U.S. Treasury."

The agency further noted that “FEMA and Congress have never failed to honor the NFIP’s contracts with policyholders.”

The National Association of Realtors (NAR) and the American Bankers Association (ABA) both issued statements criticizing FEMA for the announcement.

“Today’s ruling comes contrary to congressional intent and is in conflict with FEMA’s decision to allow NFIP operations during the 16-day government shutdown in 2013,” said Shannon McGahn, NAR’s senior vice president of government affairs in a statement issued Wednesday. 

“Last week, Congress passed legislation to fully reauthorize the NFIP through May,” McGahn continued. “However, today’s surprise FEMA ruling jeopardizes tens of thousands of home sales across America, as NAR estimates up to 40,000 closings are disrupted each month that the NFIP cannot issue flood-insurance policies.”

ABA President Bob Nichols said FEMA’s decision was in direct conflict with what Congress and the Trump administration intended in passing the six-month extension.

“FEMA’s unexpected decision will complicate and delay loan closings for borrowers who are required to carry flood insurance and seek NFIP coverage for as long as the government shutdown continues,” he said. “FEMA’s failure to inform Congress and the public earlier that such action would be taken, despite the passage of the extension, is distressing,” he added. “We hope that FEMA will reconsider this unfortunate action immediately.” 


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