WASHINGTON—Congress’ inability to renew the National Flood Insurance Program has potentially dire consequences, Federal flood agency management officials warned.

The NFIP was allowed to expire Sunday when a congressional appropriations bill that included the program was held up by Sen. Jim Bunning, R-Kentucky.

According to a memo written by officials of the Federal Insurance and Mitigation Administration/Risk Insurance Division, of the Federal Emergency Management Agency, the interruption of the flood program means claims cannot be paid while it remains in legislative limbo.

A copy of the memo was obtained by National Underwriter. FEMA is part of the federal Department of Homeland Security.

According to the memo, home mortgage lenders will not be able to make loans or complete mortgage closings in areas that require flood insurance, specifically, “mortgage transactions on properties located in flood zones will stop,” the memo said.

A complete reauthorization of NFIP authorization has been a matter of debate since 2008. The program has been given limited extensions through various acts of Congress four times.

The latest proposed extension would have run the program until March 28, but legislation to continue it has been blocked because it was part of a measure that included jobs creation money that drew objections from Sen. Bunning; the senator has objected on the grounds that funding for the bill has not been delineated.

Today the senator again blocked efforts to get the temporary extension through.

Sen. Harry Reid, D-Nev., Senate majority leader, now plans to include the NFIP reauthorization in a larger jobs bill expected to be on the Senate floor this week.

In the latest comment, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies, called the current situation “disconcerting.”

He said Sen. Bunning’s ability to stop temporary extensions, “If nothing else, should make it clear that short-term extensions, which can be blocked by any Senator or congressional caucus, are untenable.”

Mr. Grande added that, “Members of Congress have exposed millions of Americans to costly liabilities by allowing the program to lapse again.”

“Providing protection from flood losses should be more of a priority for the government,” he explained.

“After one of the stormiest winters on record, and with hurricane season fast approaching, it is unfortunate that Congress would fail to act on this issue and put millions of Americans’ financial security at risk,” he said.

According to the FEMA memo, lapse of NFIP authorization is placing a “hardship on citizens seeking mortgage loans or refinancing that require flood insurance as a precondition to settlement.”

Moreover, the memo said, “capital otherwise available from federally regulated institutions will contract.”

“The lending and real estate industries and insurance companies writing insurance would suffer significant disruption, as would Fannie Mae and Freddie Mac,” the memo added.

FEMA sought to reassure the home lending industry through its memo that it “continues to work with the insurance, lending, homebuilding and real estate communities to mitigate the consequences of a hiatus in NFIP authority.

“However, failure to reauthorize the NFIP quickly will affect those industries and cause unnecessary delays in selling property, closing mortgage loans, and entering into contracts for property insurance,” the memo added.

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