The report paints a grim picture of the potential impact on the mortgage market
Potential homebuyers in flood-prone areas could find themselves unable to buy a home in those areas due to the government shutdown, according to a report released on Tuesday.
An estimated 3,619 home closings daily were at risk of not occurring nationwide, which could cost the industry nearly $1.6 billion, according to HomeAbroad, a real estate investment technology platform.
The National Flood Insurance Program (NFIP) is one of the things affected by the shutdown, meaning lenders cannot pull flood insurance until the government is reopened.
Kimber White, president of the National Association of Mortgage Brokers (NAMB), said his organization sent letters to members of Congress asking them to reopen it.
"We've just drafted a letter to send to all the Congressmen and Senators in the flood states to say it is imperative, if nothing else gets done, that you extend and reauthorize the NFIP,” White told Mortgage Professional America. “Because I have already talked to a couple of brokers, and the options on flood insurance are high.”
He noted that banks have been advised that they can still move forward with loans as long as they can show they’ve requested the insurance, but he said banks aren’t going to be willing to take that risk.
“'Mr. Lender, you can still do the flood insurance, and you can do it without getting flood insurance, but you have to guarantee that that person is going to get a quote and get the insurance when it comes to you, right?'” White said. “I don't know any lender that's going to do that. Yeah, no, I'm sorry they're not taking that risk.”
Loans at risk
The report analyzed data from 633 counties across the country and found that 108,092 monthly closings are now at risk.
Maryland leads the states with the highest number of loans at risk, with 63.8% of home sales disrupted. They are followed by Virginia (61.1%), South Carolina (57.6%), New Jersey (57.0%), Massachusetts (54.8%), Florida (54.3%), and Georgia (53.8%).
Amresh Singh, founder and CEO of HomeAbroad, said it’s not just communities on the coasts that are affected.
"The shutdown isn't just hitting beachfront properties; it's paralyzing transactions in Phoenix, Chicago, and other inland markets buyers never expected," Singh said. "Buyers under contract must immediately explore portfolio lenders who don't require NFIP coverage or private flood insurance alternatives. Sellers should pivot to cash buyers or offer seller financing. With each passing day, meaning 3,600 failed closings, waiting isn't an option."
With some experts believing that the shutdown could last into November, the total costs estimated by HomeAbroad are staggering. A shutdown lasting two months would affect 217,140 closings at a cost of $95.36 billion.
Turning to private insurance
The report showed a greater market vulnerability to flood insurance disruption than previously anticipated. It showed a 45% NFIP penetration rate across the 633 counties analyzed. In total, 13 states are experiencing 100 or more closing disruptions.
Debjit Saha, co-founder and investment expert at HomeAbroad, said many investors didn’t account for this type of risk.
"This data reveals a hidden dependency most investors never calculated into their risk models," Saha said. "Smart money is already pivoting, cash buyers are negotiating 5-10% discounts on stalled deals, while sellers with failed contracts are offering creative financing. Private flood insurance costs 20-40% more but keeps deals alive. Investors should map their portfolio's NFIP exposure immediately and prepare for extended market disruption."
White noted that while private flood insurance is an option, at best, it’s going to be significantly more expensive, and at worst, it might kill a deal.
"They can't qualify (for the loan),” White said. “Imagine that Joe gets on there, and we've got a flood insurance quoted at $2,000, and you've got a 46% debt ratio. And next thing you know, it's $6,000, you just blew their debt ratio and their qualifying ability out of the water. So they can't qualify."
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