Flooding Puts Spotlight on Insurance, NFIP Extended

The House and Senate passed a three-month extension of the National Flood Insurance Program as part of a legislation package to make more than $15 billion in assistance available to storm-ravaged areas in the country. The legislation now awaits President Donald Trump’s signature.

“Extending the National Flood Insurance Program was a must-do item, and Congress delivered,” NAR President William E. Brown said Thursday. “That’s good news for consumers and an opportunity for proponents of meaningful reform.”

The program that was set to expire on Sept. 30, will remain in effect until Dec. 8. The NFIP provides flood insurance to 5 million homeowners nationwide. Lenders require flood insurance in order to close on mortgage financing if the home is in a flood zone.

The massive flooding in Texas from Hurricane Harvey put pressure on lawmakers to support a short-term reauthorization of the program, observers say. The House Financial Services Committee passed measures earlier this year to reauthorize the NFIP but that would aim to cut the program’s debt by shifting more policy holders to the private market.

Panel Chairman Rep. Jeb Hensarling, R-Texas, has made it known he would be open to winding down the program altogether.

NAR is continuing to work with lawmakers on reforms and a long-term extension to make the program better. The association supports the 21st Century Flood Reform Act, H.R. 2874, which passed the House Financial Services Committee a few weeks ago. The bill would reauthorize the program for five years, encourage private insurers to enter the market, cap annual insurance premiums at $10,000, and grandfather existing rates for certain homes that are already covered and in compliance with building standards. It would also make money available for owners to elevate their homes or take other flooding precautions and enable communities to use flood mapping techniques that are more accurate than the government’s.

The bill would make a number of other reforms, including improvements to the processes for owners who file a claim or want to submit an appeal. “With a short extension on their side, leaders in the House and Senate should continue work on the 21st Century Flood Reform Act,” Brown said. “It’s in everyone’s interest to strengthen the NFIP and ensure the long-term certainty that current and future homeowners demand.”

“All you have to do is look at the news reels and see contrary to what many on the far right are suggesting, this program isn’t a giveaway for the rich, these are working-class Americans in one of our major metropolitan areas who now absent this program could have lost everything,” said Jerry Howard, chief executive of the National Association of Home Builders.

Yet the storm’s impact on the long-term legislative debate may be limited.

“Our bill makes the program more affordable by opening it up to private market competition,” Hensarling said in a statement. He added that “there is basically just one insurance provider for all of the flood risk in the whole country, which is exactly the system the government has built for itself with its NFIP.”

He indicated that the storm strengthens the case for why the program needs to be overhauled.

“I hope the devastation caused by Hurricane Harvey is a wake-up call to Washington when it comes to flood insurance,” Hensarling said.

Yet banks support extending the program that provides subsidies for flood insurance policies on homes in designated flood areas. Flood insurance is typically required on such properties before loans can be closed, and there can be delays in closings and other logistical problems with any lapse in authorizing the program.

“We don’t want that to happen again,” Anne Canfield, executive director of the Consumer Mortgage Coalition, said of lapses in the program.

Caitlin Berni, vice president of policy at Greater New Orleans Inc., defended funding the program.

“The flood insurance helps get people to have skin in the game and they are paying premiums and paying dollars so when disaster does hit there is a pool of resources they can take advantage of,” Berni said.

Between 2008 and 2012, the NFIP needed 14 short-term extensions, and experienced five program lapses. In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which reauthorized the NFIP through Sept. 30 of this year. Many in the GOP have sought to make the program — now roughly $25 billion in debt — more financially self-sufficient.

The NFIP can borrow another $5 billion, but if the damage from Hurricane Harvey matches or exceeds that of Hurricane Sandy in 2012, the flood insurance program will run out of borrowing authority.

“It’s looking like this is going to be a pretty big disaster, so it is likely to hit the program’s borrowing authority,” Berni said. “That may lead to a scenario where Congress has to lift the program’s borrowing authority.”

What makes flood insurance unique is, unlike most fiscal policy issues that separate Democrats and Republicans, flood insurance tends to fall along geographic lines with lawmakers in coastal regions favoring government support for the NFIP.

Hensarling, a free-market conservative from a district outside the Harvey flood zone, has already shown a willingness to bend under pressure from other Republicans.

“Before the recess Hensarling had already agreed to step back from some of the more aggressive reforms that he and some other folks on the committee had pushed at the committee level because he was getting push back from members of his own caucus who were in flood prone areas,” Pigg said.

Texas is home to some of the most conservative members of Congress, and eight Republican representatives voted against funding the NFIP in 2013 and 23 voted against Hurricane Sandy aid. But with Harvey ripping through Houston and much of central Texas, observers said, some lawmakers apparetnly have put philosophical views aside, at least for now.

As for a longer-term reform bill, Hurricane Harvey might have an impact in terms of what a final bill will look like and when, but the extent of its impact is still unclear.

The storm “highlights the need for the program but is also probably going to highlight the added expense that comes so I just don’t know what direction it takes the reforms that have been on the table,” Pigg said.

“It certainly illustrates that [Congress] needs to put partisanship and rhetoric aside and do what they were elected for, and that was to enact policies that affect the American people,” Howard said.

Source: National Mortgage News