Congress on Friday approved a 5-year extension to the National Flood Insurance Program, which covers 5.6 million people.
Failure to renew the program would have been a blow to the fragile housing market because potential homeowners in flood-susceptible areas would be unable to close on mortgages or refinance loans. A two-month lapse in the program in 2010 resulted in some 1,400 home sales a day being cancelled.
Congress created the flood insurance program in 1968 because few private insurers cover flood damage, leaving the government to cover the costs of disasters. Many of those covered by the program live in flood-prone areas where flood insurance is mandatory for those with mortgages from federally regulated lenders.
The program was generally self-sustaining until Hurricane Katrina and other hurricanes struck in 2005. The program now owes the Treasury nearly $18 billion dollars.
The plan approved Friday attempts to put the program on better financial footing by giving the government greater flexibility to raise rates. It also ends federal coverage for some properties, including vacation homes.
The flood insurance measure was included in a package of bills that also set federal transportation policy and prevent a doubling of interest rates for millions of college students.
It includes a provision by Sen. Roger Wicker, R-Miss., that enlists the National Oceanic and Atmospheric Administration to assess the nature of hurricane damage. After Katrina, private insurers tried to avoid paying claims for wind damage, saying that homes were destroyed by federally covered water damage.
It also moves to improve the floodplain mapping of the Federal Emergency Management Agency, which runs the flood insurance program, and streamlines FEMA efforts to raise or move homes that are sources of repetitive claims to the insurance fund.
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