National Flood Insurance scheduled to expire Friday

With federal interest rates at a bottom-basement level, a higher-than-usual number of mortgage applications are clogging the South Louisiana Bank pipeline just as the urgency to empty the pipe reaches its peak.

FEMA’s National Flood Insurance Program, which insures more than 5.6 million residential and business properties throughout the nation, is set to expire Friday.

Some prospective homebuyers, because federally regulated banks cannot approve property mortgage applications unless a flood insurance policy is in place for areas deemed hazardous flood zones, will be unable to secure home or business financing during the hiatus.

David Roger, vice president of South Louisiana Bank, said he monitors the NFIP status very closely and has felt the pressure to finalize deals before it expires.

“It’s kind of a catch-22 because rates are so low right now, we have so many loans in the pipeline, there is no way to rush it because you are at the mercy of your underwriters,” Roger said. “It’s the lowest rate cycle ever, and it’s just bottlenecking, basically.”

Congress reauthorized the NFIP with a one-year extension last year after a two-month lapse. The current authorization expires Saturday at midnight.

Approximately 16 loans at South Louisiana Bank were placed on hold during last year’s lapse, Roger said, though he added it should be less this time around. About 30 loan applications are currently in the “pipeline,” he said, and although he doesn’t know how many applicants have secured flood insurance, most applications pertain to refinancing.

“Most people who are refinancing already have their flood insurance in place, so it’s mostly purchasing (that is affected),” Roger said. “To be honest with you, we’re doing more refinancing right now than we are purchasing, so it may not have as much of an impact this time as it did last time.”

The more than 491,000 currently in-force policies across the state are safe and potential flood damages would be paid, but homebuyers on the cusp of closing their deals and who are required to sign up with the NFIP could see delays.

Essentially, if a loan closes after the start of the hiatus, the policy application must have been submitted by Sept. 30 and the premium payment must be received within 10 days of the application date, unless it comes from an escrow account.

Policy applications that are not filed prior to the potential hiatus will be held and not go into effect until Congress won’t reauthorizes the program.

Debbie Chauvin, owner of Weichert Realtors and president of the Bayou Board of Realtors, said she foresees an impact in business in the event Congress doesn’t approve a deal.

“It’s going to probably slow sales down with people having the unknown of getting flood insurance, especially with hurricane season here,” Chauvin said. “We’re still doing steady business, but the closer it gets to the end of the month, I can’t see where we’re going to write a whole bunch of business this week.”

More specifically, Chauvin said the east side of Houma would be impacted more than the west because of flood zone determinations.

“We still have a lot of the parish area that is not designated as, the west side anyway, most of it is fairly OK, so we can get some loans approved in those areas,” she said. “But I can’t see where you can get anything done with the east side of Houma right now.”

Claims for in-effect policies will be paid as usual, but “Claims for new policies where the premiums were received and held by the company during the hiatus will not be paid until Congress reauthorizes the NFIP,” FEMA said. “However, your insurance company can proceed with investigating your claim under a ‘non-waiver’ agreement or reservation-of-rights letter, up to the point of payment.”

Companies would not be required to pay the claim if Congress does not reauthorize the NFIP, or if Congress chooses to renew the program but not retroactively. In several lapses over the past few years, Congress has yet to reauthorize the program without doing so retroactively.

More than 491,000 policies are in-force in Louisiana, insuring $110.5 billion worth of property, which ranks the state third behind Texas and Florida in both quantity and amount insured.

FEMA posted a detailed explanation regarding NFIP reauthorization Sept. 15 at www.fema.gov/business /nfip.