UPDATED: Flood insurance guidance aims to help banks, savings institutions keep their heads above water during shutdown

Even though the National Flood Insurance Program (NFIP) is unavailable because of the partial federal government shutdown, banks, savings and loan institutions and others can still make loans, the federal banking regulators said in a late Friday statement.

Because of the dispute between President Donald Trump and the Congress over federal funding of a border wall, no funding for about 25% of the federal government has been approved in congressional appropriations. The funding shortfall includes the Federal Emergency Management Agency (FEMA)which administers the NFIP. Since the budget impasse began last week, NFIP programs have been “unavailable.”

But the banking regulators – the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), along with the Farm Credit Administration – Friday said lenders may continue to make loans subject to the federal flood insurance statutes without flood insurance during a period when the NFIP is not available.

“However, lenders must continue to make flood determinations, provide timely, complete, and accurate notices to borrowers, and comply with other parts of the flood insurance regulations,” the agencies said in a joint release. “In addition, lenders must evaluate safety and soundness and legal risks and prudently manage those risks during the lapse period.”

Each of the agencies pointed to 2010 “informal guidance” that they issued, which they said is “generally applicable” whenever NFIP is unavailable.

In addition to the due diligence outlined in the statement, the 2010 statement by the Federal Reserve also notes that “lenders should have a system in place to ensure that [flood insurance] policies are obtained as soon as available following reauthorization for properties that are subject to mandatory flood insurance coverage.”

UPDATE: Politico reported Friday evening that FEMA and the Trump Administration (with the Office of Management and Budget (OMB) weighing in) are restarting the sale of flood insurance policies during the shutdown, backtracking  FEMA’s earlier decision to halt new coverage, quoting a senior administration official.

Agencies issue statement on financial institutions issuing loans when National Flood Insurance Program is unavailable