HUD Homes For Sale March 8, 2010

The National Flood Insurance Program expired

The National Flood Insurance Program expired Sunday night after Congress failed to pass a temporary extension of the program that is vital to protecting homes in the New Orleans area.

The lapse puts home sales at risk and could leave homeowners whose policies were scheduled to renew March 1 in jeopardy in the unlikely event that Monday's rains turned out to be heavy enough to cause flooding.

Other homeowners with existing flood coverage should face no repercussions.

While the federal flood insurance program is expected to be re-authorized, frustrated insurance agents and Realtors are asking why Congress is treating the program so carelessly by keeping it alive with temporary extensions rather than finish the sweeping overhaul that was launched after Hurricane Katrina.

"They keep doing temporary extensions rather than just passing it. It's almost like they don't understand the ramifications of their actions," said Chris Paulin, an executive at Insurance Underwriters Ltd. in Metairie who is also president of the Independent Insurance Agents and Brokers of Greater New Orleans. "To me, it's just irresponsible."

For the past few years, Congress has been extending the National Flood Insurance Program's authorization for a few months at a time while overhaul bills have been pending. Hurricane Katrina exposed shortcomings in the program, such as coverage limits that are out-of-step with today's home values, and reinvigorated a debate about how much the program should charge for policies and how to get more homeowners to buy policies.

The extension periods have been getting shorter, making the program more subject to Congressional whims. Last Thursday, the Senate failed to act on a bill previously passed by the House of Representatives that extended the program for 30 days, causing the program to lapse for the first time in recent memory.

The Senate reconvenes today , re-opening the possibility for action.

Most homes in New Orleans are in flood zones, so lenders require federal flood insurance coverage as a term of the mortgage because standard homeowners insurance policies don't cover damage from rising water.

Without the program in force, home buyers can't close on loans where flood insurance is required. Realtors say closings will be rescheduled, but if buyers and sellers are near the end of their contract periods, sales could be scuttled.

"They're obligated to delay the closings," said Glenn Gardner, director of operations at Prudential-Gardner Realtors. "but if somebody, for example, is at the last day of their contract, and someone changes their mind, it could put the sale in jeopardy."

On Monday afternoon, local insurance agents were bracing for the possibility of closing delays. "As of today, we are not able to bind any or endorse new coverage, so potentially it could affect real estate closings," said Robby Moss, president of the Hartwig Moss Insurance Agency and vice president of Latter & Blum Insurance Services.

Al Pappalardo, a local insurance agent with Pappalardo Insurance who is a past president of the Independent Insurance Agents of Greater New Orleans, urged people with upcoming closings to check in with their insurance agents to make sure that all of their paperwork is in order. Fortunately, since real estate closings often occur at the end of the month, few closings might be affected, Pappalardo said.

In addition to not being able to write new policies, insurance agents also can't increase coverage on existing policies or renew policies until the program is re-activated.

But Paulin said that the program lapse could affect policyholders whose coverage was scheduled to renew March 1 if there was a flood.

According to rules spelled out in a FEMA bulletin, for the policy to remain in force, renewal payments must have been received before the program lapsed. Since the program expired Sunday night, a homeowner's escrow account must have sent the payment to FEMA in time for it to have been received by Friday for the policy to remain in force.

If the renewal isn't received in time, any homeowner experiencing a flood will have to rely on Congress to re-authorize the program retroactively. According to a Feb. 25 FEMA bulletin, FEMA believes that would happen. "If a lapse does occur, an extension will probably be done retroactively."

For all other homeowners with flood policies, FEMA says that claims should be made and processed as normal if anyone were to experience flooding while the program was on hold. "Claims for covered losses occurring during a hiatus on existing policies...are to be processed an paid as usual," the memo says.

Gardner said he's grateful that Congress picked a good time of year for the lapse. "Fortunately, they didn't pick the middle of hurricane season," he said.

By Rebecca Mowbray, The Times-Picayune