The 43-Day Stress Test: Lessons from the Longest Lapse in NFIP’s History
The housing industry just faced a major disruption: a 43‑day lapse of the NFIP, the longest in its history. For lenders, servicers, real estate, and insurance professionals, it was a real‑world test of compliance and risk management. During a Cotality–MBA webinar, industry experts reflected on the impact and how to prepare with another reauthorization deadline approaching.
The data behind the disruption: By the numbers
A lapse in the NFIP disrupts housing and commercial property markets because lenders and agents cannot follow normal processes when the property is in the FEMA Special Flood Hazard Area (SFHA). A one-day lapse has an impact. Therefore, let’s look at what happened over 43 days from a numbers perspective:
- 40,000 Home Sales: Estimated closings on properties in the SFHA. Sellers, buyers, agents, loan officers, and others faced possible added expense, special handling, and uncertainty.
- 43 Days of 2025 Atlantic Hurricane Season: Policyholders likely felt uncertainty in light of the devastation of Hurricanes Helene and Milton of 2024
- 6,000 Properties Moved into the SFHA: Servicers faced decisions on handling of the map-in notifications and some homeowners were likely not made aware of the change.
- Flood map revisions for dozens of communities delayed: Due to the concurrent government shutdown, FEMA was not able to publish federally required notices of future map revisions, therefore delaying the release of future map revisions. Later in 2026 and possibly into 2027 we may see heavier map revision volume as FEMA works to address the backlog.
The necessity of the "Lapse Playbook"
One of the clearest take aways from our discussion was that "wait and see" is not a good strategy. Lenders and servicers with a documented playbook for handling originations, pre-closing and post-closing reviews, servicing, vendor oversight, and borrower communication were better equipped to manage these exception processes and respond quickly and efficiently once the lapse concluded.
As Don Brown of Navigator Consulting emphasized during the Cotality webinar:
"You have a unique opportunity because you just experienced an extended period of shutdown to consider your risk assessment, test your controls for effectiveness, and identify where these can be improved—across origination lines as well as the servicing groups".
Navigating the compliance complexity
A lapse brings uncertainty from a compliance perspective. While mandatory purchase requirements may be technically suspended when insurance is "unavailable," the underlying risk—and certain regulatory duties—remain.
Heather Wright, Regulatory Counsel at Buchalter, highlighted a critical distinction during the webinar:
"From a strictly legal standpoint, the only way you have a federal mandatory purchase requirement ... is if you have a ‘designated loan.’ But lenders still have to determine whether or not the property is in the SFHA and provide the Notice to Borrower. Most of my lender clients continued to require insurance at closing—bridging the gap with private flood or completed NFIP applications and receipt of payment."
Lessons learned: A strategic checklist
Based on highlights from the webinar, here are some best practices to follow and some worst-case scenarios to avoid:
Looking forward: Advocate for a long-term reauthorization
This historic lapse highlighted the need for advocacy by the industry to urge Congress to take the necessary action to stop these short-term extensions with the associated risk of lapses. However, as Lisa Peto of Mindset cautioned during the webinar, a clean break from this cycle is likely not going to happen this month:
"I don’t think we’ll see a separation of the NFIP from the continuing resolution before January 30. It’s just hard to start moving individual bills. If there is going to be a separate process, then that probably includes reform discussions, and I don’t think we are at a point where the reform discussions are going to move forward."
On December 2, a group of 14 trade associations—including the National Flood Association (NFA), the Mortgage Bankers Association (MBA), and the American Bankers Association (ABA)—urged Congress to prioritize a long-term reauthorization along with prudent reforms in support of the flood mapping program, mitigation, and both private and federal flood insurance options.
This joint trades letter marks the important consensus across housing, commercial, insurance, and real estate industries on the topic of the NFIP:
“[It] is time to end the cycle of short-term extensions and program lapses that fuel instability in real estate markets and communities dependent on reliable flood coverage and mitigation support.”
In the meantime, with another potential program lapse less than a month away, now is the time to ensure your readiness. Review your protocols, conduct any needed training, confirm your vendor readiness, and stay informed. Together, we can better prepare for what lies ahead.
