On December 21, 2018, the President signed legislation that extended the National Flood Insurance Program’s (NFIP’s) authorization to May 31, 2019. All was well for another six months, or so everyone (including Congress) thought.
On December 27th, FEMA ruled that the NFIP extension doesn’t allow for its continuation during the ongoing government shutdown. This decision broke FEMA precedent established during the October 2013 government shutdown, when FEMA continued to issue and renew policies. Apparently, in the eyes of the current FEMA administration, re-authorization of the program does not equate to funding. So, while Congress and the building and mortgage industry cry foul, we are left to consider our course of action. Can we close a loan with a property in a flood zone? What about those loans already on our books?
Luckily for us, the FRB issued informal guidance back in 2010 (the last time the program was allowed to lapse). Below is the summary of that article.
Lenders may continue to make loans subject to the flood provisions of Regulation H, 12 C.F.R. § 208.25 without flood insurance during a period when the NFIP is not available. Such lending does not violate 12 C.F.R. § 208.25. However, lenders must continue to make flood determinations, provide timely, complete, and accurate notices to borrowers, and comply with other parts of the flood insurance regulations. In addition, they must evaluate safety and soundness and legal risks and prudently manage those risks during the lapse period. Further, lenders should have a system in place to ensure that policies are obtained as soon as available following reauthorization for properties that are subject to mandatory flood insurance coverage.