What Happens If the National Flood Insurance Program (NFIP) Lapses?

This Insight provides a short overview of what could happen if the National Flood Insurance Program (NFIP) were not to be reauthorized by January 30, 2026, and allowed to lapse.

Expiration of Certain NFIP Authorities

The NFIP is the primary source of flood insurance coverage for residential properties in the United States. The NFIP has over 4.6 million flood insurance policies providing $1.3 trillion in coverage, with over 22,700 communities in 56 states and jurisdictions participating. The NFIP is authorized by the National Flood Insurance Act of 1968 (Title XIII of P.L. 90-448, as amended, 42 U.S.C. §§4001 et seq.). The NFIP does not contain a single comprehensive expiration, termination, or sunset provision for the whole of the program. Rather, the NFIP has multiple different legal provisions that tie to the expiration of key components of the program.

Since the end of FY2017, 34 short-term NFIP reauthorizations have been enacted (Table 1). The NFIP is currently authorized until January 30, 2026.

Unless reauthorized or amended by Congress, the following will occur on January 30, 2026:

• The authority to provide new flood insurance contracts will expire. Flood insurance contracts entered into before the expiration would continue until the end of their policy term of one year.
• The authority for NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion.

Other activities of the program would technically remain authorized. However, the expiration of the key authorities listed above could have potentially significant impacts on the remaining NFIP activities.

If there were to be a lapse in authorization on or after January 30, 2026, with borrowing authority reduced to $1 billion, the Federal Emergency Management Agency (FEMA) would continue to adjust and pay claims as premium dollars come into the National Flood Insurance Fund and reserve fund. If the funds available to pay claims were to be depleted, claims would have to wait until sufficient premiums were received to pay them unless Congress were to appropriate supplemental funds to the NFIP to pay claims or increase the borrowing limit.

The Mandatory Purchase Requirement

The expiration of the NFIP's authority to provide new flood insurance contracts has potentially significant implications due to the mandatory purchase requirement (MPR). By law or regulation, federal agencies, federally regulated lending institutions, and government-sponsored enterprises must require certain property owners to purchase flood insurance as a condition of any mortgage that these entities make, guarantee, or purchase. Residential and commercial property owners are required to purchase flood insurance if their properties are identified as being in a Special Flood Hazard Area (SFHA, which is equivalent to having an estimated 1% or greater risk of flooding every year) and is in a community that participates in the NFIP. Without available flood insurance, real estate transactions in an SFHA potentially could be significantly hampered.

Federal agencies may accept private flood insurance to fulfill the MPR if the private flood insurance meets the conditions defined in statute. Although the private flood insurance market is growing, the MPR is still generally met through NFIP coverage. Lenders rather than FEMA enforce the MPR.

Past Lapses of the NFIP

The NFIP was extended 17 times between 2008 and 2012 and lapsed four times: March 1-2, 2010; March 29 to April 15, 2010; June 1 to July 2, 2010; and October 1-5, 2011. In past NFIP lapses, borrowers were not able to obtain flood insurance to close, renew, or increase loans secured by property in an SFHA until the NFIP was reauthorized. During the lapse in June 2010, estimates suggest over 1,400 home sale closings were canceled or delayed each day, representing over 40,000 sales per month. These figures applied to residential properties, but commercial properties were also affected by the NFIP lapse. In addition, the largest Write Your Own (WYO) insurer left the NFIP in 2011, reportedly because of the administrative burden associated with very short-term reauthorizations and lapses in authorization. In most cases when the NFIP lapsed, Congress reauthorized the NFIP retroactively. During these NFIP lapses, the Federal Deposit Insurance Corporation issued guidance to lending institutions, and the Federal Reserve also issued informal guidance to lenders. In addition, FEMA usually provides guidance for the WYO program. FEMA did not issue guidance for the 2025 lapse. The most recent guidance was issued in December 2024.

During the government shutdown in October and November 2025, authorization for the NFIP lapsed for 43 days. Some lenders suspended the requirement for homebuyers to purchase flood insurance. However, early reports suggest that the lapse may have adversely affected the housing market in some states, such as Florida. The legislation that ended the shutdown (P.L. 119-37) authorized the NFIP retroactively to September 30, 2025.