Some areas may face challenges in buying or selling a home this fall due to a potential 'man-made disaster,' according to a real estate expert.

• The National Flood Insurance Program, backed by the government, safeguards 4.7 million policyholders and shields over $1.28 trillion in property.
• Congress has until Sept. 30 to reauthorize the NFIP.
• Jaret Seiberg, a managing director and financial policy analyst at TD Cowen, stated that obtaining a mortgage in any area that requires flood insurance will not be possible without an extension.

The Federal Reserve is likely to cut interest rates in September, which consumers have been eagerly anticipating as they search for a home in the market.

If Congress does not act, there may be a temporary change in the housing market at the end of the month, making it more difficult to buy or sell a home or refinance an existing mortgage in some areas.

The National Flood Insurance Program, which is the largest flood insurer in the U.S. and is backed by the government, must be reauthorized by Sept. 30 in order to continue issuing new policies or increasing coverage on existing ones.

Typically, homeowners insurance policies do not cover flood damage, so consumers must purchase a separate flood policy to safeguard their homes and belongings from this hazard. Mortgage lenders may mandate obtaining a flood policy before closing on a property, based on the flood risk assessment of the location.

"According to Jaret Seiberg, a managing director and financial policy analyst at TD Cowen, obtaining a mortgage in a flood zone after Sept. 30 will be impossible without an NFIP extension."

Flood insurance does not cover all damages, preventing hurricane damage on homes is possible, and people are leaving cities with poor air quality.

The NFIP was created by Congress in 1968 to offer affordable flood insurance coverage. However, the Biggert-Waters Flood Insurance Reform Act of 2012, which included NFIP authorization, expired on Sept. 30, 2017. Since then, Congress has renewed the NFIP's authorization 30 times, but it has also lapsed briefly three times during that time frame.

"For many years, the program has faced expiration, with Congress reauthorizing it at the last minute, as stated by Bryan Greene, vice president of policy advocacy at the National Association of Realtors. We strive to prevent natural disasters, but we often encounter a man-made disaster of not acting promptly enough."

What a program lapse would mean for home sales

If the NFIP loses its authority, it won't be able to create new policies, including those required by lenders for flood insurance or increased coverage on existing policies, including property owners looking to refinance their mortgages, according to a spokesperson for the Federal Emergency Management Agency, which oversees the NFIP.

The home sale transaction may be delayed or halted until the buyer can acquire flood insurance, according to Jeremy Porter, head of climate implications research at First Street Foundation, a nonprofit organization in New York that focuses on quantifying the financial risk of climate change. This could involve waiting for Congress to renew the NFIP or searching for coverage on the private market.

Few private insurers provide flood insurance, according to Daniel Schwarcz, a professor of law at the University of Minnesota Law School who specializes in insurance law and regulation.

"For all practical purposes, he stated that the NFIP is the sole option for obtaining flood insurance."

If the NFIP lapses, it could make it harder to find a private insurer.

According to a report by the National Association of Realtors, 6% of real estate agents reported a delayed or canceled sale when the program lapsed from May 31 until July 2 in 2010. The report from 2011 estimated that a one-month NFIP lapse could affect about 40,000 closings.

"To avoid the risk of the flood insurance program lapsing, it is recommended to close on a house purchase or sale before September 30th, according to TD Cowen's Seiberg."

How homeowners would be affected by a lapse

The NFIP protects more than $1.28 trillion in assets for 4.7 million policyholders. If the NFIP lapses, existing policyholders may be shielded.

During a lapse, the NFIP will still pay claims under existing policies, as stated by the FEMA spokesperson.

Renewing your flood insurance policy early is recommended if its renewal or expiration date is near Sept. 30, according to Yanjun Liao, an applied microeconomist and fellow at Resources for the Future, a nonprofit research institution in Washington, D.C.

Liao, whose research centers on natural disaster risk management and climate adaptation, advised checking the expiration date and making plans in advance.

If a homeowner is planning to refinance their mortgage, they should consider the timing in relation to the Sept. 30 reauthorization deadline, especially if their lender mandates flood insurance coverage.

Why NFIP reauthorization is a 'catch-22'

Schwarcz stated that the NFIP has been consistently renewed due to the potential risks of having limited private insurers.

Schwarcz stated, "We're in a real dilemma. Our program is poor, and nobody enjoys it."

"People are dependent on it without a better alternative, and no one can agree on better alternatives, so you can't get rid of it."

Critics often point to policy pricing as a concern.

The NFIP was viewed as a subsidized insurance program, with individuals in low-risk areas paying for flood insurance in high-risk areas, according to Porter of the First Street Foundation.

In 2021, FEMA introduced Risk Rating 2.0, a new pricing system that accurately reflected the cost of an area's risk. However, homeowners and elected representatives of coastal states have opposed this change due to the high premiums it resulted in.

Porter stated that you went from paying $800 annually to thousands of dollars yearly for your insurance.

In August, Sen. Bill Cassidy, R-La., addressed the increasing premium costs of NFIP in his Gulf Coast state and called on Congress to enhance the program.

In his speech, Cassidy stated that his team is working on a bipartisan solution to roll back Risk Rating 2.0 and make flood insurance affordable and accountable once again.

It is unlikely that Congress will allow the NFIP to expire entirely due to the large number of homeowners who rely on the program, according to Seiberg.

The flood insurance program is a financial disaster, and Congress appears unable to address the issue, instead opting to postpone the problem.