Making loans without flood insurance - Save this one

On Friday, federal financial institution regulators issued a joint statement to remind lenders that loans can be made during periods when the National Flood Insurance Program (NFIP) administered by the Federal Emergency Management Agency (FEMA) is unavailable. The 2010 guidance issued by the Federal Reserve, FDIC, and OCC on the issue is generally applicable whenever the NFIP is unavailable. However, lenders must continue to make flood determinations, provide timely, complete, and accurate notices to borrowers, and comply with other parts of the flood insurance regulations. In addition, lenders must evaluate safety and soundness and legal risks and prudently manage those risks during the lapse period.

Coming fast on the heels of the joint statement, FEMA announced that it will resume issuing new flood policies during the government shutdown, reports The Hill. FEMA's statement on Friday read, "As of this evening, all NFIP insurers have been directed to resume normal operations immediately and advised that the program will be considered operational since December 21, 2018 without interruption." Of course, on December 21, the president signed a bill extending the authorization for the NFIP through May 31, 2019, a fact that FEMA seemed to ignore Thursday when it announced the program would be suspended during the shutdown.

We recommend that banks tuck the regulators' Friday statement about lending when the NFIP isn't available into their electronic reminders, to pop up just before May 31. Until then, it's business as usual.