Lawmakers vote to keep NFIP

With hurricane season well under way, millions of Americans can rest assured knowing that the National Flood Insurance Program will be extended an additional five years.

With hurricane season well under way, millions of Americans can rest assured knowing that the National Flood Insurance Program will be extended an additional five years. Not only is this welcome news to homeowners in flood-prone locations, but experts claim it could help housing markets in these areas as well.

To make up for the NFIP's multibillion-dollar deficit, the program was extended, but under different conditions. The government now has a greater flexibility to raise flood insurance rates on homeowners, while other properties, such as vacation homes, will no longer be able to qualify for coverage. Instead, households will need to insure their non-primary properties through a private lenders.   

In 2010, a two-month lapse of the program resulted in a wave of home sale cancellations throughout the country. Mortgage records show during this 60-day period, an estimated 1,400 transactions were canceled per day, as buyers feared they wouldn't have long-term federal protection against damage caused by flooding.

The NFIP was established in 1968 because few home insurance providers offered flood protection at the time. Nowadays, borrowers who live in areas where flooding is common and have government-backed mortgages from the Federal Housing Administration, Fannie Mae and Freddie Mac, are required to enroll in the program.

Households with a policy through the NFIP can receive up to $250,000 in structural coverage and $100,00 for personal possessions. Those who require more can still purchase this basic policy and also sign up for excess coverage with a private provider.

Until recent years, the NFIP was financially sustainable, but a string of devastating hurricanes and other events caused the program to draw an estimated $18 billion from the Department of the Treasury. Most notably, the aftermath of Hurricane Katrina in New Orleans in 2005 caused lawmakers to question how beneficial the program was.

As of last year, only 14 percent of American homeowners had flood insurance coverage, whether it was through NFIP or a different source, according to a survey conducted by the Insurance Information Institute. This was a significant improvement from a year earlier, when only 10 percent of homeowners claimed to have coverage, but was below a peak of 17 percent seen in 2008. Regionally, the South had the highest percentage of homeowners with flood insurance at 19 percent, while only 5 percent of properties in the Northeast were protected.



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