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How Will Recent Flood Insurance Legislation Affect Mortgage Lending?

Congress initially created the National Flood Insurance Program (NFIP) in 1968 under the National Flood Insurance Act to provide property owners with affordable insurance coverage for losses or damages due to catastrophic flooding.

Today, this program is administered by the Federal Emergency Management Agency, which is part of the U.S. Department of Homeland Security (DHS). The program's goal is to lower the impact of flooding through insurance coverage as well as encourage communities to create and enforce regulations for floodplain management.

The Biggert-Waters Flood Insurance Reform Act of 2012 reauthorized the NFIP for five years. It has since been funded by a series of short-term measures approved by Congress. NFIP was to expire again on May 31, 2019 but has been extended to September 30, 2019. There are several measures making their way through Congress that could impact mortgage lending.

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How Recent Flood Insurance Legislation Might Affect Mortgage Lending

The worst things that can happen are to have the NFIP expire or be declared insolvent. These are issues that lawmakers on both sides of the aisle are attempting to solve with the new legislation. The danger to the housing market is real. According to the National Association of Realtors, a lapse in the NFIP could disrupt as many as 40,000 closings per month nationwide.

The first major bill being advanced is H.R. 3111, "The National Flood Insurance Program Administrative Reform Act of 2019." The bill aims to make administrative reforms to the NFIP to increase accuracy and fairness and protect taxpayers from program abuse and fraud.

It also plans to improve the appeals process, transparency of the claims process, and accountability in the aftermath of Hurricane Sandy. This bill has bipartisan support as well as support from the National Association of Mortgage Bankers.

The other major bill is H.R. 3167, "The National Flood Insurance Program Reauthorization Act of 2019." The bill was sponsored by Rep. Maxine Waters [D-CA-43], also Chair of the Committee on Financial Services.

H.R. 3167 begins by reauthorizing the NFIP for another five years, but there's more. It also includes several reforms that are meant to increase affordability, modernization, and mapping. Making flood insurance more affordable, accessible, and fair will also make housing more affordable.

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What Does the Future Hold for These Bills?

Because these two bills have received bipartisan support, they have a strong chance of passing. They also have backing from the mortgage and housing industry, which has its share of influence on Capitol Hill. The next step is for the bills to go before the full House for a vote, then the Senate. If they pass, they'll head to the President's desk for signature.

Having the NFIP re-authorized will be a positive development for buyers, sellers, and mortgage lenders alike. Other reforms can help keep the program solvent and may even lower premiums in the future.