What to do if the NFIP Expires?

Every couple of years, the National Flood Insurance Program (NFIP) gets set to expire.  This is a result of the way Congress funds the program as the typically only renew the program for a few years at a time.  That is, if they renew the program on time.

Often times, the program is operating at a loss and Congress has a difficult time passing a long-term approval of the program.  When this happens, the program is typically reapproved on a short-term basis, but there are cases where the program expires.

Of course, the expiration of the NFIP causes challenges for both customers and financial institutions.

Fortunately, the federal regulators (OCC, FDIC, Federal Reserve, and NCUA) have provided guidance to the financial institutions they supervise as to what should be done in the event the NFIP expires.  In short, the agencies explain that financial institutions may continue to make loans secured by a structure in a high-risk flood zone without flood insurance during a period when the NFIP is not available. The agencies say that such lending does not violate flood insurance rules.

That said, the guidance also states that financial institutions 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 financial institutions must evaluate safety and soundness and legal risks and prudently manage those risks during the lapse period. Further, regulated institutions 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.

In addition to the general guidance, the agencies have provided a number of Q&As regarding steps that should be taken during a period of time when the NFIP has lapsed.

The guidance for each regulator can be found here:

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