Can You Transfer a Federal Flood Insurance Policy During a Government Shutdown?

The Question Nobody Asks First (But Should)

When someone calls me asking, "Can I transfer the seller's flood insurance policy during this government shutdown?" my first response isn't "yes" or "no."

The first question I ask is: Does the existing policy have enough coverage to satisfy your lender's requirements?

Here's why this matters: Most people assume policy transfers are simple name swaps that take a few days. And they're right—when everything lines up perfectly. But during a government shutdown, a seemingly minor coverage gap becomes an impossible problem to fix.

Let me show you what I mean with a real scenario from December 2022.

The $50,000 Gap That Killed a Closing

We had a buyer purchasing a severe repetitive loss property (a home that had experienced three flood claims within a 10-year period at some point in its history). The existing NFIP policy had coverage, but it didn't meet the bank's requirement for the full loan amount.

Here's what happened:

• The property: Severe repetitive loss status (required NFIP Direct, couldn't use a Write Your Own carrier)
• The problem: Existing policy didn't have enough coverage
• What we needed: An endorsement to increase coverage
• The shutdown reality: NFIP Direct staff were furloughed, and even if they weren't, endorsements to increase coverage are completely blocked during shutdowns
• Private insurance option: Not available for severe repetitive loss properties
• Bank exception: Denied

The closing had to be delayed for months—not days, months—until the government reopened and the backlog of endorsement requests could be processed.

Understanding the Two Types of NFIP Policies (And Why It Matters During Shutdowns)

Not all NFIP policies are administered the same way. There are two distinct types, and during a government shutdown, they behave very differently:

NFIP Direct

These policies are serviced directly by FEMA using federal employees and contractors. During a government shutdown:

• Federal staff may be furloughed (not working, not getting paid)
• Even simple policy transfers can stall completely
• Nobody is available to process paperwork
• Severe repetitive loss properties MUST use NFIP Direct—they have no other option

Write Your Own (WYO) Carriers

These are private insurance companies (like Wright Flood, Selective, or Assurant) that sell and service NFIP policies under FEMA guidelines. During a government shutdown:

• Private company employees continue working (they're paid by the company, not the government)
• Can process policy assumptions/transfers in 3-7 business days
• Still cannot issue NEW policies or process endorsements (federal authority has lapsed)
• Much more reliable during shutdowns for basic transfers

What You Can and Cannot Do During an NFIP Shutdown

The Coverage Gap Problem: When a Transfer Isn't Enough

Here's the scenario that creates the most problems during shutdowns:

Seller's existing NFIP policy: $200,000 building coverage
Buyer's loan amount: $300,000
Bank requirement: Coverage equal to the loan amount OR the maximum NFIP limit ($250,000 for residential), whichever is less

In this case, the bank needs $250,000 in coverage. The existing policy only has $200,000. That $50,000 gap requires an endorsement to increase coverage.

During a government shutdown, that endorsement cannot be processed.

Your Three Options (And Why Two of Them Usually Don't Work)

Option 1: Request a Bank Exception

You can ask your lender to close with insufficient coverage and allow you to increase it later. In my experience, banks rarely approve this during shutdowns because:

• They have no timeline for when you'll actually be able to increase coverage
• During a shutdown, they can't force-place insurance if needed
• It creates compliance issues with Fannie Mae/Freddie Mac requirements
• Banks are more risk-averse during government uncertainty

Option 2: Get Private Flood Insurance

This is typically my recommendation IF the property has no flood claims history. Here's why:

• Private carriers continue operating during government shutdowns
• Can often get quotes and policies issued within 24-48 hours
• Since December 2022, ALL federally-backed mortgages (FHA, VA, USDA, Fannie Mae, Freddie Mac) accept private flood insurance—this was a game-changing HUD rule change
• For properties without claims, private rates are often competitive with NFIP

However, private insurance has one major drawback: You permanently lose any NFIP glidepath rate protection. If you ever return to NFIP in the future, you'll pay full-risk rates.

Option 3: Delay Your Closing

Wait for the government shutdown to end, then process the endorsement to increase coverage. The problems:

• No way to predict when the shutdown will end (could be days or months)
• After shutdown ends, there's a massive backlog of requests processed oldest-to-newest
• During the 2018 shutdown, some endorsements took MONTHS to process after the government reopened
• You may lose your interest rate lock or the seller may cancel the contract

The Severe Repetitive Loss Trap

Properties with severe repetitive loss status face the worst scenario during shutdowns:

1. Must use NFIP Direct (cannot use WYO carriers)
2. Cannot get private insurance (claims history makes them uninsurable in private market)
3. NFIP Direct staff may be furloughed (nobody working to process anything)
4. Banks won't grant exceptions (the claims history makes them too risky)

A property receives severe repetitive loss designation after experiencing three or more flood claims within any 10-year period in its history. This label stays with the property permanently, even if current owners have made improvements or elevated the structure.

The Glidepath Rate Decision: When Should You Switch to Private?

One of the toughest decisions during a shutdown is whether to abandon an NFIP glidepath rate to get private insurance and close on time.

Here's a real example:

Seller's NFIP policy: $2,000/year on glidepath (full-risk rate would be $8,000)
Private flood quote: $2,800/year
Coverage needed: Increase from $200K to $250K
Government shutdown: Endorsement blocked

Should the buyer take the private policy at $2,800 and close on time, or delay closing to preserve the NFIP glidepath rate?

Factors to Consider:

• How far into the glidepath is the property? NFIP glidepath rates can only increase by 18% per year for primary residences (25% for rentals) until reaching full-risk rates. If the property is already in year 8 of 10 on the glidepath, you're close to full-risk anyway.
• How long is the shutdown expected to last? If Congress is close to a deal, waiting might be worth it. If it looks like a prolonged standoff, the delay could cost you the deal.
• How long will you own the property? If you're planning to sell in 2-3 years, the rate difference matters less than closing on time.
• What's the actual dollar difference? In this example, it's $800/year. Over 10 years, that's $8,000. But if delaying the closing costs you your rate lock or causes the deal to fall through, it's not worth it.

My general recommendation: If the property has no flood claims history and private insurance is within $1,000/year of the NFIP glidepath rate, take the private policy and close on time. The certainty is worth more than the rate savings in most cases.

What Changed in December 2022 (And Why It Matters)

Before December 2022, government shutdowns were absolutely catastrophic for flood insurance and real estate closings. Here's why:

Private flood insurance existed, but federally-backed mortgages couldn't accept it. Everyone was forced to use NFIP, with no alternatives.

In December 2022, HUD changed the rules. Now ALL federally-backed loans—FHA, VA, USDA, Fannie Mae, and Freddie Mac conventional mortgages—can accept private flood insurance that meets certain standards.

This change created an escape valve. During the 2018 shutdown, we saw closings delayed for months with no alternatives. Now, buyers can switch to private flood and keep their closings on track (assuming the property qualifies for private coverage).

Decision Framework: Should You Transfer or Go Private?

The Backlog Problem: What Happens After Shutdown Ends

Many people think, "The shutdown will end eventually, then I'll just get my endorsement and close."

The reality is more complicated.

When the government reopens, FEMA processes endorsement requests from oldest to newest. There's no way to jump the queue or expedite your request.

During the 2018 shutdown, which lasted 35 days, the backlog was massive. Some endorsements took months to process after the government reopened.

Here's what typically happens:

1. Government shutdown begins → endorsement requests pile up
2. Shutdown continues → pile gets bigger
3. Government reopens → FEMA staff returns to work
4. Staff works through requests in order received (oldest first)
5. Your request sits in queue with no estimated processing time

Common Mistakes Real Estate Agents and Loan Officers Make

After navigating multiple government shutdowns (2018, 2022, 2025), I've seen the same mistakes repeated:

Mistake #1: Assuming All Policy Transfers Work the Same

Agents don't distinguish between NFIP Direct and WYO carriers. They assume if the seller has flood insurance, the transfer will be quick and easy. During shutdowns, NFIP Direct transfers can be impossible while WYO transfers work fine.

Mistake #2: Not Checking Coverage Amounts Until the Last Minute

The flood insurance policy should be reviewed immediately when a contract is signed—not two weeks before closing. If there's a coverage gap, you need time to solve it before a potential shutdown hits.

Mistake #3: Waiting to Get Private Flood Quotes

Even if you plan to transfer the NFIP policy, you should get private flood quotes as soon as you're under contract. If a shutdown begins or the NFIP transfer hits problems, you have a backup plan ready to execute.

Mistake #4: Not Confirming Lender Acceptance of Private Flood

Some loan officers still don't know that federally-backed mortgages can accept private flood insurance (as of December 2022). Get written confirmation from underwriting, not just verbal approval from your loan officer.

Mistake #5: Assuming Bank Exceptions Are Easy to Get

Banks are much more conservative during government shutdowns. An exception that might be approved in normal times will likely be denied when FEMA isn't operating.

What to Do Right Now (October 2025 Shutdown)

If You're Closing in the Next 2 Weeks

1. Verify coverage immediately: Does the existing NFIP policy meet your lender's requirements?
2. Identify policy type: Is it NFIP Direct or WYO carrier?
3. Get private quotes TODAY: Even if you don't plan to use them, have them ready
4. Confirm lender policies: Will they accept private flood? Will they grant an exception? Get it in writing.
5. Don't wait: If you need an endorsement, you're likely stuck. Make the private vs. delay decision now.

If You're Closing in 4-6 Weeks

1. Monitor shutdown status: Congress may resolve this quickly, or it could drag on for months
2. Start both tracks: Begin NFIP transfer paperwork AND get private quotes
3. Communicate constantly: Keep your agent, lender, and title company in the loop
4. Have contingency plans: Know what you'll do if shutdown continues vs. if it ends

If You're a Seller with an NFIP Policy

1. Keep your policy active and paid: Don't let it lapse during this uncertainty
2. Provide documentation early: Give your listing agent a copy of your declarations page when you list
3. Know your policy type: Tell buyers upfront if you're NFIP Direct or WYO—it affects their options
4. Understand you may not get a refund: If the buyer assumes your policy, you typically don't get a premium refund (though you can negotiate this in the purchase agreement)

If You're a Real Estate Professional

1. Review flood insurance at listing time: Don't wait until you're under contract
2. Know the difference between NFIP Direct and WYO: It matters during shutdowns
3. Build relationships with flood insurance specialists: You need experts who understand the nuances
4. Educate your clients early: Explain the shutdown risks before they're under contract
5. Check for severe repetitive loss status: This should be discovered during due diligence, not at closing

The Bottom Line: Plan Ahead or Pay the Price

Government shutdowns and NFIP lapses are becoming increasingly common. Since fiscal year 2017, Congress has passed 33 short-term NFIP extensions. The program hasn't had a long-term reauthorization since 2012.

This means every few months, we face the possibility of another shutdown affecting flood insurance. It's no longer a rare emergency—it's becoming a regular risk that must be planned for.

The good news is that since December 2022, when HUD allowed federally-backed mortgages to accept private flood insurance, buyers have more options than ever before. The shutdowns are still disruptive, but they're no longer the complete catastrophe they were in 2018.

The key is understanding the system and planning ahead:

• Review flood insurance coverage the day you go under contract
• Know whether you're dealing with NFIP Direct or a WYO carrier
• Get private flood quotes as backup even if you plan to transfer NFIP
• Submit any endorsement requests immediately if a shutdown looks likely
• Understand that severe repetitive loss properties have almost no good options during shutdowns

Most importantly: Don't assume a policy transfer will be simple just because the property has existing flood insurance. The first question should always be whether that existing coverage is sufficient—because if it's not, you're facing a much more complex problem during a government shutdown.