A federal program providing flood insurance is set to lapse if the government shuts, potentially blocking the completion of thousands of transactions.
A federal program providing flood insurance is set to lapse if the government shuts, potentially blocking the completion of thousands of home sales.
If the NFIP lapses, home sales for which lenders require flood insurance could be delayed. The flood insurance program wouldn’t be able to issue new policies, increase coverage on existing policies, or renew existing policies, Fema said in an email. “Policies that are in force will remain in force and NFIP insurers will continue to pay claims under those policies during a lapse.”
“It’s easy to pick the Louisianas and the Floridas, but think of all the riverine communities across the country,” said Jim Tobin, the president and CEO of the National Association of Home Builders. Closings on properties located along waterways in which lenders require flood insurance could be delayed, he said.
That is relatively small in terms of the national real estate market. It is unlikely to disrupt mortgage stocks, said Bose George, a Keefe, Bruyette & Woods managing director covering mortgage finance companies—but home sales could slow in flood-prone areas, adding to the challenges local mortgage and real estate businesses face.
“Most single family forward loans would be able to proceed, with the exception of loans requiring assessment by a HUD underwriter,” a Department of Housing and Urban Development spokesperson told Barron’s, adding that the department would be unable to endorse certain loan products, such as reverse mortgages or Title 1 home improvement loans. Both Ginnie Mae and the FHA, two government backers of mortgages, are part of HUD.
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