In reversal, FEMA will fund new NFIP policies during shutdown

by Andrew Morrell

Editor’s note: This story has been updated from the original to reflect FEMA’s policy change.

The ongoing shutdown of parts of the federal government will have a minimal impact on home sales that require flood insurance, thanks to the reversal of a decision by the Federal Emergency Management Agency.

The agency issued a statement Dec. 26 which said that as long as the shutdown continues, it would not issue new flood insurance policies or renewals under the National Flood Insurance Program.

The National Association of Realtors released a statement on the evening of Dec. 28 outlining the reversal of the decision.

“FEMA and the Administration deserve credit for hearing our concerns and acting swiftly to address them,” NAR President John Smaby said in the statement.

Denying flood insurance policies would have meant that if the shutdown were to continue, thousands of home sales could be in jeopardy, according to NAR and other groups. Since homes in many areas are required to purchase flood insurance, and because private insurance outside the NFIP can be expensive or hard to obtain, NAR has estimated that some 40,000 home closings per month could have been disrupted in the event of a prolonged shutdown.

Adding to the confusion, NAR argued that FEMA’s initial refusal to fund new NFIP policies contradicts the agency’s decision to do the opposite during a 16-day federal government shutdown in 2013. In addition, Congress recently passed legislation to separately authorize NFIP spending through May 2019.

The National Association of Home Builders was among the industry organizations that threw weigh behind opposing FEMA’s decision and asking that the policies continue to be issued without interruption.

“FEMA’s short-sighted action threatens to wreak havoc in many real estate markets from coast-to-coast at a time when the nation is already struggling through a housing affordability crisis,” NAHB chairman Randy Noel said in a statement released the same day FEMA announced the cessation of NFIP policies.

Senators from both sides of the aisle were also united in their disapproval of FEMA’s decision. Bloomberg reported that Florida Republican Senator Marco Rubio and Senator Maxine Waters, a Democrat from California, jointly urged FEMA to resume issuing and renewing policies immediately.

FEMA operates under the Department of Homeland Security, which is one of the federal offices that is closed due to a failure by Congress and the White House to authorize a new budget before funding expired Dec. 22.

Notably for the real estate industry, the Department of Housing and Urban Development was also closed, which could impact the processing of FHA loans. The Department of Commerce, which releases economic reports including home sales figures, was also shut down. Hundreds of thousands of federal employees remain furloughed or are required to work without pay until funding is approved for their departments.

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