A new entry may soon join hurricanes and atmospheric rivers on the list of large-scale problems roiling the housing and insurance industries in the United States: congressional gridlock.
A government shutdown, which could happen as soon as Sunday, could prevent some would-be home buyers from getting mortgages for properties in flood-prone areas, the National Association of Realtors warned this week in an article on its website. A shutdown could leave homeowners dangerously exposed to the risk of major flooding.
Homeowners in flood-prone areas often rely on the National Flood Insurance Program, which offers solutions in areas that private insurers view as too risky to operate in. But the program could run out of money if Congress cannot fund it within the next 30 days, the real estate group said, throwing as many as 1,300 home sales a day into uncertainty.
The biggest disruptions in home sales could occur in coastal areas, like Louisiana and Mississippi, as well as along the Atlantic and Pacific coastlines, Jaret Seiberg, an analyst for Cowen Washington Research Group, said in a report on Tuesday. Inland areas near rivers where flooding is common could also be affected, he added.
“It matters to mortgage originators and others tied to home sales,” Mr. Seiberg wrote. “We expect the flood insurance program will lapse after Sept. 30 as we do not see a clear path forward for legislation extending the program to become law in the coming week.”
Flood insurance is a crucial piece of the complex puzzle that many home buyers need to secure before sealing a real estate deal. Without it, they cannot easily get a home loan. Regulators require lenders offering mortgages for homes in “special flood hazard areas” to ensure that flood insurance policies are in place for them. Fannie Mae and Freddie Mac, the government-controlled entities that back the bulk of U.S. mortgages, require it for homes in those areas, too.
But as climate change makes weather events more extreme and less predictable, and as growing cities leave less room for water to safely drain away, flood insurance is harder to get. As a backstop, Congress created the National Flood Insurance Program, which is run by the Federal Emergency Management Agency. Without the program, some homeowners could struggle to keep their houses insured. And any claims made by policyholders would be paid only until FEMA’s funds ran out.
Government officials are aware of the problem and are trying to soften its effects. Federal regulators, along with Fannie and Freddie, will suspend their flood insurance requirements if the government shuts down, the National Association of Realtors said on its website. That means banks and other mortgage lenders would have to decide whether to force home buyers to have it, according to the real estate trade group. For a short time, buyers and sellers could also help each other by transferring existing policies from seller to buyer to prevent a sale from falling through.
“The longer the shutdown, the more harm done,” Shannon McGahn, a lobbyist for the group, said in the article.