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Federal Reserve: Real Estate Loans Can Occur During NFIP Lapses

The Federal Reserve has issued a bulletin addressing whether lenders can make loans during periods when the National Flood Insurance Program (NFIP) has lapsed. The...
April 14, 2010

The Federal Reserve has issued a bulletin addressing whether lenders can make loans during periods when the National Flood Insurance Program (NFIP) has lapsed. The short answer is yes, but with caveats.

The NFIP is now in lapsed status, after Congress failed to reauthorize it. The first opportunity for Congress to pass a reauthorization is when it reconvenes on April 12.

"Lenders are not precluded during a lapse in flood insurance authority from making loans due to a lack of NFIP flood insurance," the Fed's bulletin states. "However, flood insurance is not available under the NFIP during a lapse. During a lapse, a lender may legally make a loan to a borrower secured by improved real property without requiring the borrower to obtain flood insurance coverage. This does not mean, however, that a lender is relieved of other obligations under federal flood insurance law, nor does it mean that safety and soundness considerations can be disregarded."

The bulletin also states that lenders must continue to make flood determinations; provide timely, complete and accurate notices to borrowers; and comply with other parts of the flood insurance regulations. Further, lenders should have a system in place to ensure that policies are obtained as soon as available following reauthorization for properties subject to mandatory flood insurance coverage. You can read the entire bulletin here:

Guidance on NFIP Lapse (Federal Reserve 3/29/10)

On March 29, FEMA issued a bulletin with two sets of Frequently Asked Questions about the program's hiatus: a consumer-oriented version and a more technical version. Click here access the FEMA memo. You can read the FAQs here.

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