Flood Insurance is on Hold
On Sunday I am planning on showing million dollar properties to an out-of-town client who is ready to buy. One of the properties will require flood insurance. It is a beautiful log home in the middle of a pecan grove. My question is, “Why bother?” The listing agent has not bothered to return my calls because she must recognize that at this time in the game, the property cannot be sold unless someone wants to pay cash. You cannot get a mortgage loan on the property because the lender will require flood insurance — which is nowhere to be found.
Here is the current state of affairs as reported by the National Association of REALTORS® in an update date June 1, 2010:
Congress, for the third time this year, allowed the National Flood Insurance Program to expire on May 31, 2010.NAR has launched an all-member Call for Action to urge Congress to take immediate action on a lasting NFIP extension. Additional, information regarding NAR’s policy position are available at www.realtor.org.
After May 31, the NFIP will not have the statutory authority to issue new or renewal policies until Congress reauthorizes the program. This will not affect existing policies, renewal policies within a 30-day grace period, or policies purchased prior to the program’s lapse. Also, FEMA allows buyers to “assume” the seller’s existing policy without having to re-issue it (http://www.fema.gov/pdf/nfip/manual201005/03gr.pdf). The purchase requirement for flood insurance may be met with non-NFIP policies; for instance, Lloyd’s of London, Chubb and AIG have offered such insurance, but it can be very expensive and is limited to a certain number of states, with other conditions.
FEMA May 28 Notice: NFIP Reauthorization Information for WYO Companies and Agents> (PDF: 91K)
NAR has been working with FEMA, FHA, Fannie, Freddie and the VA to provide guidance, similar to what it provided in April, for lenders as to the steps they may take to meet flood insurance purchase requirement during an NFIP lapse. With updated guidance in hand, lenders should have the assurances that they need to continue to close loans. FHA has already issued updated guidance. Fannie Mae, Freddie Mac, the VA, and other lending authorities are expected to release guidance shortly, and NAR will post the guidance at www.realtor.org.
We encourage you to visit or direct your members to the following resources for additional information:
FEMA May 28 Notice: NFIP Reauthorization Information for WYO Companies and Agents> (PDF: 91K)
FEMA>
Office of Thrift Supervision Guidance on NFIP Lapses>
Fannie Mae Notice>
Freddie Mac June 1 Notice>
Veterans Administration (VA) Notice>
Veterans Administration (VA) Home Loan Loan Guaranty Home Loan Program>
FHA Appraisal and Property Requirements>
FHA Single Family Housing>
As I said, it is a drop dead gorgeous piece of property with perhaps a few extra mosquitoes per square foot. I still would like to show it and sell it. But why even bother if the buyers cannot obtain flood insurance?