By Jason Stverak
On October 1, 2025 – the day after Congress missed its deadline to reauthorize the National Flood Insurance Program (NFIP) – federal regulators issued an unusual reminder to banks, credit unions, and other lenders. They confirmed that lenders may continue making mortgage loans on properties in flood zones even while the NFIP is offline.
This guidance was meant to calm fears that home sales in flood-prone areas would grind to a halt. Yet it came with strict conditions that underscore how untenable these lapses are:
- Flood Zone Checks Still Required: Lenders must still perform flood determinations for each mortgage, assessing whether the property lies in a high-risk flood zone. Even during an NFIP shutdown, due diligence doesn’t stop.
- Borrowers Must Be Warned: Lenders must provide timely, complete, and accurate notices to borrowers about the property’s flood risk and the requirement for flood insurance, as they normally would. In other words, homebuyers can’t be left in the dark – they need to know that their new home is in a flood hazard area and typically would require coverage.
- Proceed with Caution: Banks and credit unions are urged to evaluate the safety and soundness risks of making loans without an active federal flood insurance policy in place. They should manage these loans prudently and consider legal risks. Essentially, regulators are saying: “If you lend during the NFIP lapse, you’re on the hook to manage the extra risk responsibly.”
- Private Insurance as a Stopgap: The agencies also pointed out that private flood insurance remains a viable option for borrowers during the lapse. Lenders can accept private flood policies – provided those policies meet the strict criteria under federal flood insurance regulations. In practice, this means some home buyers might turn to private insurers to get coverage, although not every borrower can easily find an affordable private policy that meets federal standards.
None of this is new regulation per se. These expectations come straight from longstanding interagency guidance that financial institutions have followed for years. But the very fact that regulators felt compelled to blast out this reminder on Day 1 of the lapse speaks volumes. It underscores that even when Washington fails to keep the NFIP running, lenders are still expected to honor their flood compliance duties. We won’t simply freeze the mortgage market in flood zones – life must go on, albeit with workarounds.
Unfortunately, those workarounds carry costs and risks. Lenders may technically make loans during an NFIP hiatus, but many will do so only with extreme caution, if at all. After all, making a mortgage loan on a home in a floodplain without flood insurance in force is a risky proposition for everyone involved. The home buyer is left temporarily unprotected from flood loss, and the lender must worry that a flood could wipe out the home’s value before insurance is eventually put in place. It’s a precarious limbo – one that our policymakers have the power to prevent, simply by reauthorizing the program on time.
Military Families Caught In The Crossfire
At the center of this issue are real families – military and civilian alike – just trying to buy a home and protect it. But military families face unique hardships when the NFIP lapses, especially those in the midst of a Permanent Change of Station (PCS) move. Military life often requires service members to relocate on short notice, giving them only a narrow window to sell their current home and purchase a new one at their next duty station.
Consider a military family moving from, say, Nebraska to coastal North Carolina on orders. They find a buyer for their old house and put an offer on a new home near the base in NC. Then, in the middle of their tightly timed move, the NFIP shuts down. Suddenly the buyer for their old home can’t secure the required flood insurance policy to close the deal, or the family’s own new home purchase is delayed because their lender can’t finalize the loan without flood coverage. In an already stressful relocation, this kind of disruption can turn into a financial crisis – two mortgages or rents to pay, temporary lodging costs mounting, and no clear timeline for resolution.
Defense Credit Union Council (DCUC) President/CEO Anthony Hernandez put it bluntly during the last reauthorization scare: “For military families undergoing Permanent Change of Station (PCS) moves, the NFIP’s continuity is especially vital…. An NFIP lapse could delay home sales or purchases during relocations, forcing families into financial hardship. Stable housing supports mission readiness, family resilience, and long-term economic security.” In other words, stable, affordable housing isn’t a luxury for service members – it’s a key part of military readiness and family wellbeing. When Congress lets flood insurance lapse, it isn’t just inconveniencing bankers or bureaucrats – it’s directly undermining the financial stability of the men and women who protect our nation.
Military-focused credit unions see this up close. DCUC member credit unions serve communities around installations from coast to coast. Many of these bases are in coastal regions, floodplains, or hurricane zones. These credit unions know that continuous access to flood insurance can spell the difference between a smooth PCS transition and a housing nightmare. They have urged Congress time and again to remember the unique sacrifices of military families and not to leave them in the lurch. Allowing the NFIP to expire – even briefly – disrupts thousands of real estate transactions and puts families, taxpayers, and lenders in harm’s way. We owe it to our service members (and all-American families) not to let that happen again.
Homebuyers And Communities At Risk
It’s not only military communities that suffer when the NFIP shuts down. Every day the program is inactive, families across America are unable to close on their new homes, and local real estate markets are thrown into uncertainty. During a previous lapse in June 2010, an estimated 1,300 home sale closings per day were stalled, resulting in over 40,000 delayed or canceled closings in just one month. Think about that: thousands of hopeful homebuyers left in limbo, moving trucks on hold; sellers unable to move out or move on; realtors, appraisers, and contractors losing business; entire communities with property sales frozen. All because the nation’s flood insurance program was caught up in congressional gridlock.
Such lapses also inject enormous uncertainty into the housing and mortgage markets. Lenders become hesitant to approve loans in flood-zone areas if they aren’t confident the borrower can obtain insurance. Even the prospect of an NFIP lapse can chill activity – buyers and lenders may preemptively hold off as a deadline nears, wary of getting stuck mid-transaction. This kind of stop-and-go approach undermines the very concept of a stable housing market. It’s especially cruel in today’s environment of high interest rates and tight housing supply; the last thing Americans need is an avoidable insurance gap slamming on the brakes.
Let’s be clear: floods don’t wait for Congress. If a hurricane or heavy rain strikes during an NFIP outage, new homeowners can’t purchase federal flood policies, and some existing policyholders can’t renew expiring ones. While most existing NFIP policies remain in force during a lapse (and claims on those will be paid from the program’s reserves), any homeowner who didn’t have coverage before is out of luck. Private flood insurers might help a few of these folks, but private coverage can be more expensive or hard to get in certain areas. The NFIP was created because the private market alone struggled to provide affordable flood insurance at the scale Americans need. That fundamental reality hasn’t changed.
Meanwhile, without a reliable NFIP, taxpayers could be on the hook for more disaster aid when uninsured flood losses mount. Or worse, families might not get the help they need to rebuild at all. “Without NFIP coverage, lenders and communities bear greater risks, and borrowers could be left unable to rebuild after disasters,” DCUC warned. The NFIP is as much a cornerstone of community resilience as it is of mortgage lending. When it vanishes, even temporarily, it leaves gaping holes in our disaster safety net.
Stop The Short-Term Patches – A Permanent Fix Is Needed
If all this sounds like a recurring nightmare, that’s because it is. Since 2017, the NFIP has limped along through 25+ short-term extensions and a few brief lapses. Rather than enacting a long-term reauthorization and needed reforms, Congress has repeatedly shoved the program onto the edge of expiration, then kicked the can down the road a few months at a time. This piecemeal approach has hung a cloud of uncertainty over coastal and riverine housing markets for years. It’s no way to run one of the country’s most important insurance programs, and it’s no way to treat American families or the institutions that serve them.
Enough is enough. Lawmakers from both parties actually agree on the importance of the NFIP – it’s historically enjoyed broad bipartisan support – yet political wrangling over unrelated issues has repeatedly held the program hostage. It’s time for Congress to remember its basic responsibilities and provide a stable, long-term solution for flood insurance. Ideally, that means a multi-year (dare we say permanent?) reauthorization that doesn’t just extend the NFIP on paper, but also tackles its underlying challenges: affordability, solvency, and adaptation to the realities of climate change.
I recently wrote in a letter to lawmakers: “We’re asking Congress to act swiftly to reauthorize the NFIP and implement thoughtful reforms… a multi-year extension will ensure credit unions can continue supporting members and communities without interruption.” In other words, give this program the certainty and improvements it needs, so that lenders aren’t operating on memoranda and faith during each lapse, and families aren’t left wondering if their home purchase or recovery loan will fall through.
There have been constructive proposals on the table for NFIP reform – from updating flood maps and investing in mitigation, to shoring up the program’s finances – and these should absolutely accompany reauthorization. But the top priority right now is to end the cycle of expirations and eleventh-hour patches. Homebuyers, homeowners, and lenders should not have to hold their breath every few months, praying that Congress doesn’t drop the ball. As I emphasized in another forum, this is about “protect[ing] communities, credit unions, and America’s military families… champion[ing] the financial well-being of those who protect us.” We cannot claim to have our servicemembers’ backs – nor American families at large – if we keep allowing the rug to be pulled out from under their flood protection.
A Call To Action
The October 1st regulatory guidance was a stop-gap message for a stop-gap situation. But America needs more than reminders and workarounds – we need results. Every stakeholder, from banking regulators to real estate professionals to consumer advocates, agrees that a stable NFIP is essential for our economy and disaster readiness. Now it’s up to Congress to deliver. As we’ve seen, the costs of inaction are measured in delayed dreams, lost dollars, and frayed safety nets.
When Congress returns to session, they should make it a top priority to permanently restore the NFIP’s authorization and put it on solid ground for the future. The families in the floodplains of Missouri and Mississippi, on the coasts of Florida and the Carolinas, and yes, on the military bases dotting our shores and riverbanks – all deserve the peace of mind that their flood insurance won’t vanish when they need it most. And lenders deserve a stable framework to help those families achieve homeownership without last-minute memos and extra hoops to jump through.
It’s often said that buying a home is the American dream. For many, that dream now hinges on something as bureaucratic as a program reauthorization. Let’s not make homebuyers and military families the collateral damage of political games. Congress must end this risky cycle and secure the National Flood Insurance Program for the long haul. Anything less is playing politics with Americans’ homes, livelihoods, and peace of mind – and that’s a risk we should no longer be willing to take.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.