The National Flood Insurance Program (NFIP), created by the U.S. Congress in 1968, aims to protect public and private structures from damages caused by flooding. Communities that are prone to this type of disaster can participate in the initiative to gain coverage that is administered by the federal government.
The buildings, homes and construction sites that are under loan and are located within the areas that take part in the program are required to have flood insurance under the National Flood Insurance Act of 1968, the legislation that included the NFIP. The NFIP is set to expire Sept. 30, 2017, a move that could cause serious consequences for homeowners and businesses.
Although the fall deadline is looming for the NFIP, it's not the first time the government-sponsored and self-supporting initiative faced its demise. The program previously expired in 2010 to the detriment of the housing industry.
"Over 1,300 home sales were disrupted every day as a result," William E. Brown, president of The National Association of Realtors said in a press release. "That's over 40,000 every month."
The Biggert-Waters Flood Insurance Reform Act of 2012, signed into law by former president Barack Obama, extended the NFIP to its current expiration date while attempting to make the program and its premiums more reflective of true flood risk. The Homeowner Flood Insurance Affordability Act of 2014 modified the 2012 legislation by eliminating certain rate increases and refunding affected policyholders, according to the National Association for Insurance Commissioners.
With the NFIP expiration date on the horizon, Congress is deciding what alterations and advancements should be made for the initiative to be reauthorized. The key is ensuring that this program remains affordable for both taxpayers and the federal government, as the NFIP borrows from the U.S. Treasury when losses are especially heavy.
Congress is looking to avoid situations like flood insurance claims from repetitive-loss properties. In 2003, the Government Accountability Office found that these incidents cost taxpayers around $200 million on an annual basis.
The upcoming NFIP expiration - if not averted by Congress before its fall deadline - could have serious consequences for the housing market and homeowners in particular. The NAR and NAIC both stressed the importance of a long-term reauthorization of the program as a way to avoid hiccups including an interruption in housing sales and the inability for people to gain access to necessary flood insurance.
In areas where the Federal Emergency Management Agency's 100-year floodplain has been created - a zone where there is a 1% chance of a flood occurring within any given year - flood insurance is required. If federal assistance from the NFIP is cut off, homeowners will struggle to obtain a residential mortgage with the disaster coverage obligation. As a result, home sales could dwindle, causing an upset in the housing market.
The program, which has bipartisan support in Congress according to Business Insurance, is undergoing various proposals that could alter its federal spending moving forward to reduce the amount of debt the initiative currently has - $24.6 billion. Only time will tell what the future has in store for the NFIP.
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