Flood Insurance Program Lapses

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Millions of borrowers saw their flood insurance lapse at year-end because of the failure by Congress to reauthorize the National Flood Insurance Program. NCUA told credit unions last month that the inaction by Congress will prevent the Federal Emergency Management Agency (FEMA) from issuing new flood insurance policies, issuing increased coverage on existing policies, or renewing policies that expired Dec. 31.

As a result, borrowers will not be able to obtain flood insurance through the federally-funded NFIP for loans secured by property in a flood plain that close after Dec. 31, until the program is reauthorized by Congress.

As NCUA noted, the Flood Disaster Protection Act of 1973, as amended, prohibits lenders from making, increasing, extending, or renewing loans secured by improved real property or a mobile home located in a special flood hazard area where federal flood insurance is available unless the building or mobile home is covered by flood insurance.

NCUA said CUs can continue to make loans secured by properties located on a flood plain but must notify the borrowers of the situation and the risks that Congress may not act soon to reauthorize the flood insurance funding.

NCUA officials said they expect the new Congress to reauthorize the flood insurance program soon after it reconvenes on Jan. 7 and make the insurance retroactive to Jan. 1, 2003.

The NFIP is an unusual federal program that provides about 90% of the flood insurance in the country because the risk is too great for private insurers to take on.

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