With the government anticipated to shut down on Wednesday, the National Flood Insurance Program (NFIP) may not be able to issue new policies or updates. This situation could create significant complications for homeowners and those involved in real estate transactions.
If current policies under NFIP, managed by the Federal Emergency Management Agency (FEMA), expire, homeowners could find themselves unprotected against floods, especially if the shutdown lasts a while.
“The primary issues are whether buyers will have insurance in case of flooding and whether FEMA has adequate funds to handle claims,” stated Austin Perez, who is the senior policy president for insurance issues at the National Association of Realtors (NAR).
On Friday, the association urged legislative leaders to broaden the program’s reach in a letter.
“Without flood insurance, American families will have to depend on federal disaster aid, which has limited resources,” said Kevin Sears, NAR’s group president.
According to NAR’s research, around 1,400 property sales could potentially be stalled daily due to a lack of flood insurance. Sears noted that such a revocation jeopardizes American lives, families, properties, and businesses.
Andy Winkler, managing director of housing and infrastructure policies at the Bipartisan Policy Center, indicated that real estate transactions might get delayed, especially where flood insurance is mandatory.
“Historically, if NFIP reauthorization isn’t extended, home sales can be postponed in areas requiring flood insurance,” Winkler pointed out.
If the program were to lapse, regulators would likely suspend flood insurance requirements for home sales. “NFIP adds complexity to home transactions, but many can still proceed without it,” Perez explained.
Yet, if flooding occurs, homes lacking insurance would be at serious risk.
Amanda De Beccalinia, co-founder and director of the New Jersey Organisational Project, mentioned that if there’s a grace period during a long shutdown, individuals who could not renew their flood insurance would find themselves vulnerable during storms.
Although private insurance exists, it currently represents only a small part of the overall flood insurance market.
As Congress edges toward a shutdown, Democrats are pressuring Republicans to support new legislation for funding, using tactics that have not seen much movement since Tuesday.
With Republicans controlling the House, Senate, and the White House, the passage of the Government Fundraising Bill presents a unique chance for Democrats to achieve some objectives, although it may risk a government shutdown that would disrupt services and result in unpaid federal employee wages. The Trump administration has also warned that more federal employees could face termination if Democrats do not approve a straightforward funding extension.
NFIP isn’t the only FEMA program at risk amidst prolonged shutdowns; Disaster Relief Funds (DRFs), allocated for storm responses, could also be affected.
As of August 31, the fund totaled $10.1 billion, which includes $8.9 billion for major disasters declared by the president and an additional $1.2 billion in basic funds.
Michael Cohen, FEMA’s chief of staff during the Obama and Biden administrations, expressed concern over the dwindling disaster relief funds.
He recalled that during significant disasters, FEMA has been able to disburse substantial amounts of money quickly, saying, “In a critical earthquake, like the Northridge earthquake in 1994, FEMA was able to spend hundreds of millions in the first 24 hours; possibly over $1 billion in the initial week.”
Without these funds, while the US can respond to disasters, it may have to reallocate resources from long-term reconstruction efforts. Additionally, lacking a clear budget means securing extra funds will be challenging.
Winkler commented that the impact of a shutdown on disaster funding also hinges on its duration, noting, “The administration is currently tightening DRF expenditures, which puts them in a better position compared to a few months ago.”
