January 23, 2018 - On Monday, after a three-day government shutdown, President Trump signed a temporary continuing resolution funding bill (“CR”) to keep the government running until February 8th. While most people following the shutdown drama focused on questions like whether soldiers would be paid, courts would stay open or regulatory agencies would function, an issue unrelated to government funding, important to the loan market but very much connected to the budget issue was the National Flood Insurance Program (“NFIP”). Indeed, the NFIP, which had been set to expire but was extended to January 19th, commensurate with the previous CR, temporarily shut down during the pendency of the shutdown. But, as reported by Politico, the new CR also extended the authorization of the NFIP until February 8th. As we recently noted, the House passed a Flood extension bill, HR 2874, that would extend the NFIP for five years and, importantly for the loan market, carved out the current NFIP mandate that requires flood insurance for commercial property. The Senate has not taken any action on the extension of the NFIP and the extension included in the funding bill avoids a shutdown of the flood program for now as senators struggle to reach an agreement on reauthorization of the NFIP. According to Politico, market observers expect that the fate of the NFIP will remain coupled with government funding extensions as negotiations continue. As we also discussed in an earlier post, the commercial flood insurance mandate requires banks to ensure that collateral located in a flood zone be insured even if the real estate is not a meaningful or material part of the collateral package. Often the burdens of compliance (on borrowers as well as banks) far outweigh the value of the insurance. We will continue to follow this important issue until it finally gets resolved.
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