The National Flood Insurance Program, which operates under funding approved by Congress, is set to expire once again on September 30, 2010. The program is currently operating under a temporary extension from earlier this year, so this will be the third time in a year that the program is facing a lapse.
So what does this mean?
If Congress re-authorizes the program (with either another temporary extension or a multi-year authorization) then we’ll all sail happily into October without any problems. But Congress doesn’t happily sail into anything, so expect another lapse. During a lapse, no new flood insurance policies may be issued, or renewed if your renewal falls during the lapse period. If you have no flood policy, you have no flood protection, so policy holders will be left bare during the lapse period.
No coverage, really? Who is affected?
Really. No coverage. But here’s what usually happens. The program lapses, and the first to notice are people buying or selling their home (not to mention their realtor, mortgage broker, title officer…). Many banks will refuse to lend in a high-risk flood area during the lapse. Others will balk at first, but relent after some stress for all parties involved. Finally, lenders will count on the program being reinstated retroactively and begin fudning loans with only an application and proof of payment from the home buyer as evidence of their intention to buy flood insurance once the program is re-authorized. Lots of stress for everyone.
What happened last time, and what will happen this time?
The crystal ball tells me that the program will, in fact, lapse again on 9/30/2010. It also tells me that this has become such a common nuisance to insureds and lenders that most will not put their business on hold. Every time the program has lapsed in the past it has been retroactively reinstated, with coverage dating back to the application date, even if the application was made during the lapse period. I predict that this will happen again, I just hope that the lapse period is a short one. Congress is about to leave town for the final push in their re-election campaigns. Let’s hope they pass some kind of reauthorization before, rather than after, the November mid-terms.
Purves Insurance is located in Davis, CA and is in favor of buying flood insurance.