Congress Tries to Rescue NFIP

The National Flood Insurance Program has been on the verge of sinking for years, with Congress being forced to throw it life preservers to keep it afloat for short periods of time.

But buoyed by bipartisan efforts on Capitol Hill, the uncertainty the program faces could evaporate.

Saying that they are tired of having to bail out the program every few months, lawmakers on both sides of the Capitol are working on long-term plans for the NFIP.

Congress has reached “an important turning point in the flood insurance debate,” House Financial Services Chairwoman Maxine Waters (D-Calif.) said earlier this month, as her committee began consideration of a reauthorization bill.

“I don’t usually have many opportunities to work with my Republican colleagues, but flood insurance has long been an issue that defies partisanship,” Waters said at a recent flood insurance conference.

Unlike many financial services efforts, Waters’s bill was quickly endorsed by Republicans on the panel.

On the Senate side, a bipartisan group of senators have begun circulating its own outline for a flood insurance bill.

The NFIP is designed to offer primary flood insurance for properties with a large flooding risk and to reduce the risk through floodplain management standards.

The program has run in the red for years. In October 2017, Congress cancelled $16 billion the program owed the federal government, with a remaining debt being serviced through revenues from premiums.

Under federal law, financial institutions recently announced they will begin accepting private flood insurance in an effort to lighten the federal load.

The legislation authorizing the program expired in October 2017. Since then, Congress has been forced to enact 12 short-term extensions for the program, as lawmakers failed in their attempts to extend the program and make changes needed to keep the program operating on a longer-term basis.

Credit union trade groups have been urging Congress to cut the deals needed for a long-term reauthorization of the program.

“The NFIP has been a source of uncertainty and instability in the housing sector due to repeated lapses in the Program’s reauthorization and short-term extensions,” CUNA President/CEO Jim Nussle wrote to the House Financial Services Committee, as the panel began its markup earlier this month.

NAFCU officials said they saw the House markup as a step in the right direction.

“We are pleased to see that the bill includes program improvements and takes steps to continue the financial solvency of the program to maintain market stability,” NAFCU Vice President of Legislative Affairs Brad Thaler wrote in a letter to the committee. “We would caution against any attempts to raise annual premium rates too rapidly, as this may lead to attrition in the program and further long-term uncertainty for lenders.”

On the House side, the bipartisan bill forged by members of the Financial Services Committee would reauthorize the program for five years. It would create a five-year demonstration program to adjust premiums based on a homeowner’s income, would repeal surcharges and would allow policyholders top pay premiums in monthly installments.

The bill also would allow states to form partnerships with the federal government to provide low-interest loans to communities for flood mitigation projects.

While financial regulators have issued rules allowing the use of private flood insurance policies, the rules did not address policyholders who elected to purchase private insurance, but then wished to return to the federal program.

The House bill would allow those policyholders to return to the federal program without penalties.

The NFIP would be required to modernize its policies for multifamily and commercial structures to allow umbrella policies that provide coverage for multiple structures under one policy, under the House bill.

The program currently requires owners to purchase separate policies for each structure.

On the Senate side, Sen. Bill Cassidy (R-La.) is leading a group of senators, including Sen. Kirsten Gillibrand (D-N.Y.) in seeking a long-term solution to the flood insurance debacle.

Cassidy has been critical of the House bill.

“This proposal is a genuine effort to solve a serious problem, but it lacks reforms needed to ensure the program is sustainable and that families won’t be hit with drastic premium increases,” he said

In a letter to leaders of the Senate Banking Committee, the senators urged them to begin work on a reauthorization plan, citing the numerous short-term extensions Congress has been forced to enact.

“This ridiculous process has created significant uncertainty and anxiety for homeowners, renters, and small business owners in our states,” the senators wrote, in listing a set of goals for the legislation.

The senators said that flood insurance must be affordable for low and middle-income borrowers and said that legislation should include a means-test affordability program for those households.

The senators also said that owners of properties that suffer from repetitive flood losses should have the opportunity to mitigate those losses through such programs as buyouts or floodproofing before their premiums are increased. They said that each dollar invested in mitigation saves at least six dollars in future damages.

The senators also called for legislation that would forebear interest on the NFIP debt, adding that without that, the program will continue to fall further into a hole.

It’s likely too early to predict whether this Congress will succeed where others have failed, but the bipartisan approaches on both sides of the Capitol show some promise.

But it’s unlikely that the House and Senate could cut a deal by Sept. 30, when the latest extension expires, so once again, Congress will have to throw the NFIP a lifeline to keep it afloat.