TO: State and Local Association Government Affairs Directors
FROM: NAR Government Affairs
RE: Flood Insurance Update
DATE: 2 April 2010
Regulators Issue Guidance to Allow Loan Closings During NFIP Lapse
Six of the nation’s largest lending authorities have issued guidance to administer the federal flood insurance regulations during the current National Flood Insurance Program (NFIP) lapse in authority (see below). Although each lending authority notes considerations, the consensus is, in most cases, loan closings may still occur during the NFIP lapse with verification of the submission of a NFIP flood policy application and premium payment submission to the insurance provider. Lenders should follow all normal flood risk evaluations prior to closing and establish follow up practices to monitor full compliance upon the re-authorization of the NFIP program. Lenders should become familiar with and follow the specific guidance offered by their lending authority.
When Congress returns on April 12, NAR will encourage them to act swiftly to reauthorize and extend the NFIP, and insist that the reauthorization should be made retroactive to March 28, 2010, so that any properties that are flooded during this lapse will be covered by the program.
For additional information, please contact:
Russell Riggs: 202-383-1259
Austin Perez: 202-383-1046
NAR Frequently Asked Questions
1. Federal Emergency Management Agency: at http://www.fema.gov/business/nfip/
3. Federal Housing Administration: http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration
4. Freddie Mac: http://www.freddiemac.com/singlefamily/news/2010/0326_flood.html
5. Office of Thrift Supervision: http://files.ots.treas.gov/25338.pdf
6. Federal Reserve: http://www.federalreserve.gov/boarddocs/caletters/2010/1003/caltr1003.htm
Additional Background Information
Congress has recessed without extending authority for the National Flood Insurance Program (NFIP) which expired on March 28, 2010. By law, flood insurance is required for the purchase of real estate in a 100-year floodplain. However, insurers may not issue new or renewal policies or increase the coverage of existing policies backed by the NFIP while it’s expired.
Since March 28, NAR has issued an all-member Call For Action for Realtors to contact their members of Congress and urge the immediate extension of the NFIP. NAR has also reached out to Federal agencies, GSEs and the bank regulators to clarify what lenders and insurers may and may not do to help during the program’s expiration.
FEMA, which administers the NFIP, issued guidance that:
Existing flood insurance polices that were in effect on March 28 (when NFIP expired) will remain in effect and would not be affected.
While new flood policies may not be issued after that date, new policies for which payment was received or in case of loan closings, the application was dated on or before March 28 — will be issued.
Also renewal policies may not be issued until the NFIP is extended; however, there is a 30-day grace period during which the policy remains in effect following its expiration date.
NOTE: Buyers may also “assume” the seller’s existing policy without having to re-issue it (NFIP Manual, Page GR 15).
“D. Assignment: A property owner’s flood insurance building policy may be assigned in writing to a purchaser of the insured property upon transfer of title without the written consent of the NFIP. Policies on buildings in the course of construction and policies insuring contents only
may not be assigned.” Source: http://www.fema.gov/pdf/nfip/manual201005/03gr.pdf
The purchase requirement for flood insurance may be fulfilled with non-NFIP policies; for instance, Lloyd’s of London, Chubb and AIG have offered such insurance, but it can be very expensive and is limited to a certain number of states, with other conditions:
NAR will continue to make every effort with Congress to extend the NFIP and in the meantime, encourage Federal agencies, GSEs and bank regulatorys to take every step available to them under current law, to continue servicing residential and commercial mortgages in the interim. NAR staff
will continue to provide regular updates.