The National Flood Insurance Program will lapse tomorrow, Tuesday, July 31st. But what actually happens if the program expires?
Currently, the program provides over 5 million policies totaling roughly $1.28 trillion in coverage, and there is no ‘sunset provision’ involved if the program lapses. The NFIP has been extended more than 25 times since 2008, and when it lapses this is what happens:
- The authority to provide new flood insurance contracts will expire. Flood insurance contracts entered into before the expiration would continue until the end of their policy term for one year.
- The borrowing authority of the NFIP from the treasury will be reduced from $30.425 billion to $1 billion.
Other activities within the plan would remain authorized, such as Flood Mitigation Assistance Grants. If the borrowing authority was to be reduced to $1 billion, any homeowners wishing to receive assistance from borrowed funds exceeding $1 billion would have to wait until the additional funds were received from premium payments.
Effects on the housing market – Due to what is called the Mandatory Purchase Requirement, any home receiving a loan from a federally regulated lending institution is required to purchase a policy if the property is considered to be in a Special Flood Hazard Area. During a lapse in June 2010, an estimated 1,400 home sales were delayed or cancelled each day, totally over 40,000 sales per month.
Multiple bills have passed the House, while the Senate still needs to act. Majority leader Mitch McConnell says he will force a vote Tuesday if no agreement has been reached. The window is closing, and any senator could delay a vote, causing a lapse. Tomorrow we will see if Congress can put together a long-term extension such as HR 2874, or either of these four other extensions: S 1313, S 1368, S 1571 and S 3128.