In its haste to finish business, Congress left the bill continuing the national flood insurance program on the table. This would make a great commercial for the next presidential challenger, ala the VISA Check Card commercial. Governor Jeb Bush walks up to his insurance agent to buy a federal flood flood insurance policy so that he can close a loan on his new beach home. The insurance agent asks for Congressional ID for the program. Jeb asks the agent to hold on for a moment, and brings in his brother and father to assure the agent that it is OK to issue the flood insurance policy. The announcer extols the virtues of passing FEMA legislation - don't leave the Rotunda without it.

The result of this Congressional fumble is that no new federal flood insurance policies or renewals can be issued after January 1, 2003, until Congress returns and approves the flood insurance program extension. Loan servicers should make sure that premium renewals are mailed in advance of the new year so that policies continue in force. Those who live in special flood hazard areas (or who are buying homes in these areas) should try to purchase flood insurance before the end of the year. Property owners who must close after the first of the year and will not be able to purchase flood insurance in advance should seek private flood insurance policies, if available. It may be that closings will be delayed by lenders if flood insurance is not available. Worse yet, lenders may be required to force place private policies if a property owner lets a federal flood policy lapse.

FEMA will shortly send sample renewal notices to agents to send to policy holders. The likely result will be confusion and a small measure of panic by policy holders, and a lot more calls to loan servicers. The notices can be found attached to a FEMA memo at the MBA web site at http://www.mbaa.org/industry/docs/02/fima_1125.pdf.

Howard's link has a period at the end that does not belong there. Try this:

http://www.mbaa.org/industry/docs/02/fima_1125.pdf

Howard,

What do you think the timeframe is to get this fixed? How long after the first of the year will it be before Congress can remedy this?

It looks to me that they (Congress) left without doing their job. If we tried that we wouldn't have a job!

You can do this if you are the one who votes on your pay raise!

My dad has worked for an agency of the USDA for years. I can't tell you how many fiscal year ends passed where Congress didn't fund operations of the federal government for the following year. At times, non-essential federal employees were sent home for a period. This isn't something new for Congress. It doesn't affect their livelihood, so they don't consider it crucial!

Obviously, the unavailability of coverage will become an immediate problem after 1/1/03. Banks will not be able to close loans on flood-prone properties legally until Congress acts. Since this problem could continue for weeks or months, loan commitments, lock agreements, and other timed agreements might expire, causing significant cost and inconvenience for borrowers.

It's probably a good idea to begin notifying all applicants of this possibility at the earliest point in the process. Also, banks will want to search pipelines for any deals that will require flood insurance and accelerate the processing to get them in under the wire. Finally, flood checks should be done as early as possible so borrowers can be told if their loans may be subject to this type of delay.

Since the flood insurance application and copy of the premium check is sufficient evidence of flood coverage at closing, wouldn't you still be able to close loans after 1/1/03 with that same information? The publication here simply says that the premiums will be held until the Congressional funding goes through, but I would imagine at that point the coverage would be retroactive to the application/premium paid date.

I was wondering that as well. The only part that bothers me is what we'll have to do when the 30-day application binder expires. Will we then be required to force-place the insurance until Congress fixes this?

I also wondered this, however will only existing policies be retroactive and not new policies, or will both? What happens if you close a loan after 1/1/03 in a SHFA and the property floods before congress acts and the new policy is issued?

I believe you can normally close under those circumstances because you are reasonably sure a policy is forthcoming. That isn't the case a month from now.

Thank goodness we do few loans in SFHAs. This could be a tough call.

In the meantime, will borrowers have the option to obtain flood insurance elsewhere?

How can we force place flood insurance? If the borrower can't get it, how can we?

I want to say (that is I am not positive) that flood insurance can be purchased privately. I have read that the FEMA issues effect 90% of the policies issued.

The next question is, is it affordable if not through FEMA?

If anyone is clued into the insurance industry you could really contribute here...

We'll have to get it through private insureers.

FEMA has a list of WYO (Write Your Own) insurers at this site.

I forgot to include this from page 2 of the Mandatory Purchase of Flood Insurance Guidelines.

"The pemium charged for NFIP flood coverage by a WYO Company is the same as that charged by the Federal Government through the direct program."

We'll just have to wait to see if this holds true.

This will be very helpful, Dan. Thx.

I'm feeling really stupid, but have to ask...
In regard to what State Farm says on its web site:

"State Farm offers Flood Insurance through the National Flood Insurance Program. Although the government actually provides the coverage, State Farm issues and services the policy. In the event of flood damage to your insured property, State Farm would service your claim."

Doesn't this mean that they only "service" the policy and that the government is actually the underwriter? So then no one can get insurance until statutory authority is re-established?

I can't speak for State Farm, but there are insurance companies that will write flood insurance. If you get in the situation that you need to obtain flood insurance, you'll just have to start calling the list and asking if they will issue a private policy. I don't know who will or who won't.

Also I have a brochure #F-073 (01/02) titled The Choice is Yours....WYO Companies Actively Writing Flood Insurance 2001-2002 and lists about twice as many insurance companies as FEMA's site.

I got this at seminar this past summer.

Sorry, the brochure is from FEMA.