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Flood wins five-year extension

By Jay MacDonald · Bankrate.com
Tuesday, July 10, 2012
Posted: 10 am ET

The National Flood Insurance Program, one of Capitol Hill's favorite footballs, finally crossed the goal line last week when President Obama signed into law a bill that extends the federal program for five years and enacts changes designed to make the program more sustainable.

Under the extension, dubbed the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012, NFIP will next expire on Sept. 30, 2017. Without the extension, NFIP would have expired at the end of July, smack in the middle of hurricane season.

NFIP has been on extended life support since 2005, when Hurricane Katrina dramatically exposed the troubled program as financially unsustainable. Since then, Congress has granted it short-term extensions, often at the 11th hour, while it wrestled with how to tweak a program that currently owes the Treasury $18 billion.

A NFIP lapse disrupts as many as 1,300 home closings a day where mortgages are contingent on flood insurance in addition to homeowners insurance, according to the National Association of Realtors.

Getting the five-year flood extension passed required something of a power play by Congress, which combined it with two bills facing deadlines: the Surface Transportation Act essentially kept transportation funding at current levels and the Federal Direct Stafford Student Loan program prevented federal student loan interest rates from doubling to 6.8 percent this month.

To move toward a more sustainable architecture, the bill extends the cap on annual premium increases from 10 percent to 20 percent, giving the government greater leeway to raise rates. It also phases out subsidies for vacation homes, imposes minimum deductibles for flood claims and enables multifamily properties to purchase policies.

The bill also requires the Government Accountability Office to assess whether NFIP should expand its coverage to include business interruption and additional living expenses, and streamlines the government's ability to raise or move homes that are the source of repetitive claims to the program.

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