The U.S. Federal Emergency Management Agency has ceased writing and renewing flood insurance policies under the National Flood Insurance Program, citing a "lapse in federal funding" as a result of the U.S. government shutdown.
About a quarter of the U.S. government is shut down after an impasse between Congress and the White House. Although FEMA's funding lapsed with the shutdown, Congress successfully reauthorized the flood insurance program before the shutdown standoff, on a 315-48 House vote, effectively allowing FEMA to continue operations of the program.
As a result, FEMA said, policies that were in force before midnight Dec. 21, 2018, will remain in force. In addition, FEMA will process and pay claims under those policies as usual until reserves and funds held by the program are depleted. However, additional funds from the U.S. Treasury will not be borrowed.
"Existing flood insurance policies remain valid regardless of FEMA's capacity to pay claims," the agency wrote in a statement. "FEMA and Congress have never failed to honor the NFIP's contracts with policyholders."
FEMA also said, however, that the NFIP and its private insurance partners "may not issue new contracts for flood insurance during a lapse in authority unless Congress passes legislation reauthorizing the NFIP." It said this would limit its ability "to issue new policies, issue increased coverage on existing policies or issue renewal policies."
About 5 million policies are written by the program nationwide.
Trade groups and lawmakers immediately slammed FEMA for the decision, saying broadly that FEMA misinterpreted its authority with Congress' reauthorization of the program.
"I urge FEMA to immediately reconsider this harmful and incorrect interpretation of its authority and resume its important work of providing flood insurance to families across the country," Rep. Maxine Waters, D-Calif. and likely the next chair of the House Financial Services Committee, said in a statement.
Five insurance trade groups called FEMA's action a "rebuke of Congress and [the] President," saying the "inability of FEMA to act as directed by our elected officials is disappointing."
The National Association of Realtors said about 40,000 home sale closings would be disrupted for every month the NFIP cannot issue new flood insurance policies, and it argued that FEMA's decision is in conflict with its decision to allow NFIP activities during a 16-day shutdown in 2013. Mortgage Bankers Association President and CEO Robert Broeksmit echoed that warning, saying the group has heard from some members that "the inability to secure the required flood insurance may jeopardize loan closings."
American Bankers Association President and CEO Rob Nichols said FEMA's failure to provide advance warning of the move was "distressing" and called on the agency to "reconsider this unfortunate action immediately."