There is the possibility that without Congressional action, two programs of vital importance to the real estate business will sunset on September 30, 2011. The end of the current extension of the National Flood Insurance Program (NFIP) and the lowering of FHA and GSE loan limits could create a significant disruption in a housing market struggling toward recovery. It is imperative that REALTORS® remind their members of Congress how important these issues are for a fragile housing market.
Over the past few months, the National Association of REALTORS® has sent letters, met with Congressional staffers, launched Calls for Action and brought REALTORS® from across the nation to Washington, D.C. to participate in direct talks with key Senators and Representatives. All of these actions are to urge members of Congress to pass a five-year National Flood Insurance Program extension and to keep the FHA and GSE loan limits at the current levels. As of August 1, 2011, both programs still remain in jeopardy.
Reauthorizing the NFIP
Nationally, this program is the only source of flood-damage protection for 5.6 million home and business owners. Since September 2008, Congress has approved nine NFIP extensions and allowed five lapses. During the most recent lapse in June 2010, 47,000 home sales were delayed or cancelled. Real estate markets require certainty to make the long-term investments that are vital to the U.S. economic recovery. NAR is urging Congress to reauthorize the NFIP long-term to ensure access to affordable flood insurance and end the uncertainty of extensions and shutdowns that hurt the housing market.
Due to REALTORS®’ involvement, on July 12, 2011, the U.S. House of Representatives passed a five-year reauthorization of NFIP by a vote of 406-22. While the Senate still needs to take action, this is a major step forward. REALTORS® now need to focus on getting their Senators to pass this critical piece of legislation.
FHA and GSE Loan Limits
Unless Congress acts, on October 1st, the mortgage loan limit formula and cap will fall. This could cause a significant drop in housing prices in more than 669 counties in 42 states and the territories. Changing the formula for the loan limits (from 125% to 115% of median home price) and lowering the cap means that some five million homes—roughly 27% of all owner-occupied homes in the United States—will become ineligible for mortgage financing since there is little to no private mortgage financing available.
NAR is urging Congress to support an extension of the FHA and GSE loan limits and oppose any vote to reduce these limits. Although the limits don’t expire until September 30, 2011, it takes FHA and the GSEs several months to reset their underwriting systems to accept any changes in loan limits.
The housing market remains fragile and any further disruption to the market will stall our economic recovery.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
This column is brought to you by the NAR Real Estate Services group.