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USA - A government shutdown could halt flood insurance, delaying thousands of home closings

Congress keeps hitting dead ends in attempts to extend a long-term plan for the federal program that provides flooding coverage for homeowners in the country. Unless the National Flood Insurance Program’s renewal happens by its new deadline of Feb. 2, it could lapse.

That could mean that about 1,300 closings on home sales per day would be delayed or canceled, according to the National Association of Realtors.

The flood insurance program’s Feb. 2 deadline is in the latest stopgap spending measure passed by the Congress and signed by President Joe Biden on Nov. 16. Unless the deeply divided Congress passes another spending bill for the government early next year, portions of the federal government – including the flood insurance program – would shut down.

“Reauthorizing NFIP ensures that home sales will continue to move forward with the full protection of flood insurance,” Austin Perez, a senior policy representative for the National Association of Realtors, told Capital News Service. “It’s about protecting people, property and communities from flooding, the number one natural disaster in the United States.”

Even though the federal program is not funded by the government, Congress has to reauthorize the Federal Emergency Management Agency (FEMA) to keep writing flood insurance policies.

The NFIP is funded by premiums and fees that policyholders pay. FEMA in April completed a two-year, phased-in change in rates for flood insurance policy holders.  Lawmakers have been clashing over whether the new pricing of premiums across states should reflect the level of risk of every area or if premiums should help subsidize the communities that increasingly are more vulnerable to flooding.

“It’s one of the most important programs for the entire real estate industry,” said Lake Coulson,  the chief lobbyist of the National Association of Home Builders. “Arguably (it’s) the most important insurance program that’s out there.”

FEMA’s previously announced pricing makeover for the flood insurance program, known as Risk Rating 2.0, was designed to establish the rates based on the “actuarial” risk of a particular area. In other words, the prices are intended to more accurately reflect how prone a house is to flooding based on its location.

FEMA’s move addressed sweeping annual losses and debt in the flood insurance program.

The NFIP historically has been allowed to borrow money from the Treasury Department to pay claims and later repay the government with interest, according to a report by the Congressional Research Service.

“However, this changed when Congress increased the level of NFIP borrowing to $20.775 billion to pay claims in the aftermath of the 2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma),” CRS said. “Congress increased the borrowing limit again following Hurricane Sandy to its current limit of $30.425 billion.”

Under the new model, policyholders in lower-risk areas would stop subsidizing the people in higher-risk regions.

“I think flood insurance provided by the taxpayer, subsidized by the taxpayer, shouldn’t be for rich people and shouldn’t be for their vacation home and beach homes,” Sen. Rand Paul, R-Kentucky, said during a September debate on the Senate floor over the flood insurance program.

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