National Flood Insurance Program get temporary extension.

by Steve Wilson on April 18, 2010 · 1 comment

in Homeowner's

National Flood Insurance Program lapses are troubling to housing market: Temporary extension expires May 31 and could delay closings of deals on homes in designated floodplains, again.flood

Nationwide Realtors’ stress levels fell considerably on Friday once they learned of the National  Flood Insurance Program’s reinstatement.  Although relief for Realtors, mortgage lenders and potential buyers and sellers of real estate located in designated floodplains is likely only temporary.  It is retroactive from March 28, when the fourth temporary extension since the program’s authorization originally ran out on Sept. 30, 2008.

The program, known as the NFIP, lapsed March 28 and left many pending home sales in limbo. Federally guaranteed mortgages — those backed by Fannie Mae, Freddie Mac, the FHA and the VA — on homes located in floodplains require flood insurance to close. And the NFIP backs the flood insurance issuers.

Congress and President Barack Obama finally reinstated the program Thursday night as part of a bill that also extended unemployment benefits and Medicare reimbursement for doctors. The legislation expires May 31, however, setting the stage for another lapse just weeks before the closing deadline of the federal homebuyer tax credit.

The recent 18-day lapse in the NFIP is the third since December, with each one growing in duration. The December interruption lasted nine hours, the February pause two days.  The gaps have had a minimal impact locally at this point. The earlier lapses were too brief, and the recent interruption came at a fortunate time, as the majority of April closings are scheduled for later in the month.  Plus, many lenders made special arrangements for some of the deals left in limbo. Fannie, Freddie, the FHA and the VA allowed sales on floodplain homes provided the buyer had completed a flood insurance application and prepaid the first year’s premium to the insurer.

Not all lenders were comfortable with the arrangement, though, and the remote possibility that the NFIP would go dormant for an extended period of time or be altered also scared off some buyers.

The National Association of Realtors estimates a one-day lapse adversely impacts 1,400 closings nationwide.  The situation has prompted calls for a more long-term solution, be it extending the NFIP on an annual basis or re-drafting the legislation all together.

Outlook is:            Positive               Negative              Neutral

Officials of the American Insurance Association said the goal of congressional leadership is to finish work by May 31 on a so-called tax extender’s bill, H.R. 4213, “thus precluding the need for another short-term extension of the NFIP.”

Blain Rethmeier, an AIA spokesman, added that, "Families living in flood prone areas can now obtain the coverage they need and move on with their lives. We’re glad the program has been extended and look forward to working with Congressional leaders to enact more meaningful reform rather than continuing to pass extension after extension."

That bill would extend the NFIP through Dec. 31, 2010.

According to officials of the Independent Insurance Agents and Brokers of America, “in theory, the NFIP will now return to normal operations and since the extension is also retroactive, any new policy applications or renewals that were signed and submitted during the hiatus will be effective from the date of application (or in the case of waiting periods, the waiting period will start from the date of application).”

Political gamble

The NFIP has become another gold chip in the congressional card game, said the National Association of Professional Insurance Agent’s Brian Marino.

Democrats and Republicans in the Senate disagree on funding for the program. Democrats insist the money come out of emergency spending, which would add it to the national debt, while Republicans demand the cost be budgeted and offset.  Political philosophy aside, the dissension could have a potentially damaging impact on the local housing market.

"It is very much a challenge, and I’m not really clear on why it needs to be a challenge — it’s politics getting in the way of the constituents they serve," said Tom Wiley, CEO of The Coastal Bank. "There is huge potential ahead for this to stall real estate at a time when we’re starting to show some improvement."

Real estate agents project an upturn in the housing market between now and the tax credit’s expiration June 30. Buyers need to be under contract by April 30 to be eligible for the refund — $8,000 for first-time buyers and $6,500 for most others — but have until June 30 to close and occupy the residence.

The timing signals a busy June for closings, and with the NFIP needing to be renewed by May 31, the angst is understandable.

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