Some homeowners in the National Flood Insurance Program are starting to see their policies lapse as the Oct. 1 government shutdown enters uncharted territory, the National Association of Realtors warns.
If the shutdown is still ongoing on Nov. 3, Fannie Mae and Freddie Mac will start requiring homebuyers who work for the government to show they have at least two months of documented reserves when applying for a loan.
Shannon McGahn
“We’ve never seen a full government shutdown go past 30 days, so it is difficult to know the long-term effects,” NAR Chief Advocacy Officer Shannon McGahn said in a statement Friday. “But we do know there’s a ripple effect that gets worse by the day. The effects on federal housing programs are being felt throughout the country. Our members are reporting it in real time.”
The National Flood Insurance Program (NFIP) expired on Sept. 30, complicating closings in flood zones. Fannie Mae and Freddie Mac expect lenders to continue to perform flood zone determinations, and homes located in Special Flood Hazard Areas must have flood insurance coverage or evidence of pending issuance.
Sellers can assign existing NFIP policies to homebuyers, and borrowers can also opt for private flood insurance.
While existing NFIP policies remain active and transferable, some homeowners whose policies are expiring are now bumping up against a 30-day grace period for renewal.
“As the shutdown drags on, many homeowners and businesses that rely on the NFIP could see their coverage expire, leaving families and properties in the highest-risk areas exposed in the middle of hurricane season,” NAR warned.
Although USDA loans are currently unavailable, NAR says the shutdown has not affected most FHA and VA loan closings. But many borrowers are experiencing delays in obtaining documents like federal payoff statements and IRS income verifications, and FHA condo buyers are out of luck if the building they want to purchase in is not preapproved.
For now, active-duty military service members are getting paid, but the shutdown “may delay the processing of military relocations that are already underway, affecting service members’ ability to complete their home purchases at their new duty stations,” NAR noted.
As part of its efforts to pressure lawmakers to end the shutdown NAR has issued a “call for information” asking Realtors to write their representatives with specifics of how the shutdown is affecting them.
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