U.S. Housing Policy Outlook November 2016

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National Flood Insurance Program Reauthorization – It’s Harder than it Looks


Tip O’Neill, the long-time Speaker of the U.S. House of Representatives, famously said that “all politics is local.” He was right. Maybe this is why every month, FEMA notifies members of Congress when constituents in their districts or states will be affected by their flood mapping updates.

FEMA also runs the National Flood Insurance Program. Everyone in a “Special Flood Hazard Area” must have the right insurance coverage in order to obtain a loan from a supervised financial institution.

The headline in this update is that in 2017…in the midst of a new Congress…and a new Administration…the National Flood Insurance Program is up for reauthorization. Reauthorization means that Congress is required to take a look at the program’s effectiveness and evaluate its relevance.

In theory reauthorization should be a slam dunk:

  • Flooding is the #1 natural disaster in the U.S.
  • The long-term tailing effects of Hurricane Katrina and Superstorm Sandy tell the story of how serious the effects of flooding can be
  • The National Association of Realtors reports that Congress’ previous failures to reauthorize the NFIP resulted in the loss of 40,000 home sales per month

This number alone is just too big to ignore. And yet while there’s strong agreement that reauthorization is necessary, there are concerns that divide. Here are just some of them:

The NFIP is underwater to the tune of $24 billion dollars. Even by Washington standards, this is a big number. In the eyes of some members of Congress legislative reforms to the program enacted by Congress in 2012 and 2014 are not enough.

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Realtors believe that premiums charged are often too high, and the program needs greater precision. Risk relative to price must be as exacting as possible. However, those with concerns about the $24 billion in losses are not enthused about lowering premiums.

Members of Congress have expressed concerns about NFIP private insurers profiting from the program due to FEMA’s failure to properly oversee them…Insurers don’t agree.

Members of Congress have also expressed concern that lenders are not complying with the requirement to make sure that flood insurance is in place where a home is located within a Special Flood Hazard Area. Lenders don’t agree.

There’s an emerging discussion regarding expansion of the program to individuals whose homes fall just outside of the zone of risk. Small-government members of Congress are vehement that NFIP should not be expanded. In fact, a minority of members of Congress might go so far as to eliminate the program.

Notably, some members of Congress didn’t want to wait for NFIP reauthorization to act. In April of this year the House of Representatives passed the Flood Insurance Market Parity and Modernization Act. This bill shifts risk to private insurers outside of NFIP and is intended to also foster greater price competition. But other members of Congress worry that the bill simply reduces NFIP premiums and doesn’t address the 24 billion in NFIP losses.

So what starts out looking like an easy “yes” turns out to be a complex “maybe.” Maybe yes. Maybe a temporary extension. Maybe even a temporary failure to reauthorize.

We’ll be back to you with an NFIP update in 2017 once the 115th Congress is in session.

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