National Flood Insurance Program – What Lenders Should Know During Federal Government Shutdown

One major impact of the 2025 federal government shutdown is the lapse of the National Flood Insurance Program (NFIP), which affects loans subject to federal flood insurance statutes.

During this lapse, banks and other financial institutions may continue to make these loans in flood-prone areas; however, they still must comply with specific requirements outlined in the Interagency Questions and Answers Regarding Flood Insurance.

Federal Shutdown’s Impact on National Flood Insurance Program (NFIP)

According to Q&A Applicability 12, lenders must continue to:

  • Make flood determinations
  • Provide timely, complete and accurate notices to borrowers
  • Comply with other applicable parts of flood insurance regulations

In addition, lenders are required to evaluate and prudently manage safety and soundness, as well as legal risks, during the lapse period. The Q&A also offers direction on various options available for loans secured by applicable property in a special flood hazard area.  These options include the following:

  • Postpone closing until NFIP coverage is once again available
  • Require the borrower to obtain private flood insurance coverage
  • Originate the loan without flood insurance coverage

If the third option is chosen, then you should implement procedures to ensure that flood insurance is promptly obtained when NFIP coverage becomes available. Should the borrower be uncooperative in this effort, then flood insurance should be force placed.

Anders Banking and Financial Institutions advisors stay up-to-date on the latest agency guidance to keep our clients in compliance with various regulations. Learn more about how our insights can help prevent issues with compliance, and the associated costs, request a meeting with an Anders advisor below.

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