When people buy a home in many flood-prone areas of Hampton Roads, they must purchase flood insurance before they can sign the final documents.
Flood insurance is required for most buyers using federally-backed mortgages in government-drawn high risk flood zones. That includes parts of neighborhoods across the region, such as Larchmont in Norfolk, Olde Towne Portsmouth and Fox Hill in Hampton.
But the ongoing government shutdown has put the National Flood Insurance Program on hold, preventing it from issuing new policies or renewing existing ones.
That threatens to slow real estate transactions, particularly in coastal communities like southeastern Virginia. Nationwide, the shutdown could complicate about 1,400 property transactions per day, according to the National Association of Realtors.
Jay Mitchell, president of the Hampton Roads Realtors Association, said he isn’t aware of the shutdown delaying any local home purchases yet. But that could change soon, particularly toward the middle of the month, when the market tends to see more closings.
“If we go much longer on the shutdown, we may start to see some more significant issues,” Mitchell said. Local insurance agents that facilitate policies “are not able to write at this moment, so they have to hold off and wait for the government to be able to move forward.”
Flood insurance is mandatory in what the Federal Emergency Management Agency calls Special Flood Hazard Areas, or the 100-year floodplain. That means there’s a 1% chance of flooding in any given year, or a cumulative 30% over the life of an average mortgage.
Traditional homeowners insurance does not cover flood damage.
More than a third of the land area in Norfolk, Portsmouth and Virginia Beach was located within a high-risk FEMA flood zone as of 2018, according to the Greater Hampton Roads Community Indicators dashboard.
One client in Norfolk is struggling to find a policy separate from the NFIP, Mitchell said.
Some private companies offer flood policies. But the overwhelming majority comes from the federal program, which was created by Congress in the 1960s because the private market viewed flood risk as uninsurable.
“There are a few private funders, but not many,” Mitchell said. “The NFIP typically is the best route.”
With the program on hold, some people will likely turn to private flood insurance, while also trying to move quickly, said Mary-Carson Stiff, director of the nonprofit Wetlands Watch.
“Private flood insurance can be very good and can be more reasonably priced, but you have to be really careful and do your homework,” she said.
Not all private companies are backed by a bank or have their own insurance, she said. They could go out of business after a major storm event and not be able to deliver payouts.
While the federal program is shut down, existing policyholders could also see gaps in coverage if they are not able to renew or make adjustments.
“If there is abnormally large flooding or, heaven forbid, we actually have a hurricane during this shutdown period, then every single person who's lapsed is not going to be able to submit a claim for damage,” Stiff said. “So you're looking at a giant financial risk for our entire region that grows with every single day because more lapsed policies will start to accrue.”
It’s unclear whether homeowners whose coverage expires during the shutdown would later be able to submit claims. The NFIP has a 30-day grace period for renewal payments.
But FEMA is also running out of money to administer the program until Congress passes a spending bill, which could further delay reimbursements even for active policies.
Meanwhile, Wetlands Watch has been pushing the state to expand its flood disclosure laws to make buyers more aware of their risk on the front end.
“They don't find out that they need to have flood insurance until a little bit farther along in the transaction process,” Stiff said. “That could be a concern for people who are moving in from out of state, who are just less familiar with the risk that we have in Virginia.”
Despite the shutdown, Mitchell doesn’t advise prospective homebuyers to wait.
“If they found a property they like, they should keep moving ahead on it, and we'll figure a way to get it done,” he said. “It's not going to last forever. It’s just a process of being professional and sometimes being patient.”
He recommends everyone in Hampton Roads look into flood insurance, whether or not it’s mandatory.
“If it can rain on your house, it can flood,” he said.
