National Flood Insurance Expires Monday at Midnight!

[Doug Heise]

If you are working with a buyer using financing this could be a problem. Has anyone come up with a better solution?
WASHINGTON â€" May 28, 2010 â€" Congress has a number of bills that would extend the National Flood Insurance Program (NFIP) beyond it’s pre-set deadline of Monday at midnight, but the National Association of Realtors® (NAR) now says that action is unlikely before then.

As a result, Realtors should once again prepare for a lapse in flood insurance coverage.

After Monday, NFIP no longer has the statutory authority to issue new or renewal policies unless Congress reauthorizes the program. This does not affect existing policies, renewal policies within a 30-day grace period, or policies purchased prior to the program’s lapse.

However, it does impact buyers of flood-zone properties relying on a mortgage to close the deal. Without flood insurance, lenders probably won’t release funds, effectively postponing closing on these properties until Congress reauthorizes the flood insurance program.

During the Memorial Day congressional recess, NAR says its Federal Political Coordinators will meet with Congressional leaders to urge immediate action on a lasting NFIP extension. Additional information regarding NAR’s policy position is available at www.realtor.org.

Options during flood insurance hiatus

Should a buyer not secure flood insurance on time, closing is still possible if the buyer “assumes†the seller’s existing flood insurance policy. For this to work, the seller must have coverage and be willing to transfer it. More info: http://www.fema.gov/pdf/nfip/manual201005/03gr.pdf

In addition, a handful of private companies also offer flood insurance not backed by NFIP, such as Lloyd's of London, Chubb and AIG. However, these companies issue only a limited number of policies and, without federal backing, it can be expensive.

Secondary lenders that purchase mortgages have their own guidelines on how to handle a flood insurance lapse. FHA has already issued updated guidance. Fannie Mae, Freddie Mac, the VA and other lending authorities are expected to release guidance shortly.

For more information on each secondary lender, visit the applicable website at:
FEMA: http://www.fema.gov/business/nfip
FHA: http://www.hud.gov/offices/hsg/sfh/ref/sfh1-18c.cfm
Fannie Mae: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ll1005.pdf
Freddie Mac: http://www.freddiemac.com/singlefamily/news/2010/3/NFIP_authority.html
VA: http://www.homeloans.va.gov/