Ever since U.S. Department of Homeland Security Secretary Kristi Noem announced in a cabinet meeting “we’re going to eliminate FEMA,” the future of the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) have been in jeopardy.
With FEMA’s role in emergency management, flood mapping, and flood insurance under pressure from the Trump administration, an escalation in climate-related events has financial exposure for homeowners, lenders, and local governments at a near all-time high.
First Street, a provider of climate risk financial modeling, calculating climate risk for properties globally, has released a new report, “High Water, High Stakes: FEMA, Flood Risk, and the NFIP,” highlighting the consequences faced by property owners nationwide in high flood risk areas without sufficient coverage.
According to First Street, as the primary flood insurance source in the U.S., the NFIP currently encompasses 4.7 million policies across 22,594 communities, totaling $1.28 trillion in property coverage. Any disruption in the flood insurance market, whether due to lapses in the NFIP or reductions in FEMA’s mapping and insurance capacity, could cause great ripples across local housing markets, thus stalling transactions and eroding market liquidity. The report claims that disrupting FEMA operations and NFIP stability, could force an additional 4.7 million policies currently administered by the NFIP to transition to private insurance.
Takeaways of the Report
In the report, First Street highlights five major takeaways including:
- FEMA cuts threaten national resilience: Eliminating or restructuring FEMA would disrupt disaster response, flood mapping, and mitigation funding, undermining resilience for 22,594 communities as climate risks escalate.
- NFIP stability is critical for mortgage markets: The NFIP covers 4.7 million policies totaling $1.28 trillion in property value, anchoring mortgage eligibility in flood zones and preventing credit market disruptions.
- Approximately 13 million properties lack flood insurance: Data shows that nearly 13 million high-risk properties are underinsured or uninsured, including 10 million outside Special Flood Hazard Areas (SFHAs) and 3.2 million within, exposing homeowners and lenders to sudden financial shocks.
- Flood risk materially impacts property values and credit risk: Rising flood hazards, insurance costs, and insurance availability concerns can reduce home values, lengthen sales cycles, and increase foreclosure risk, creating material financial impacts for homeowners, lenders, and local housing markets.
- Private market cannot fully replace NFIP coverage: While private insurers now cover 12% of all flood insurance policies while the NFIP covers the rest, 5% of current NFIP policies (about 235,000 properties) are too risky for the private market, meaning if the NFIP were to be dissolved, hundreds of thousands of homeowners would be left uninsured.
FOX Weather reports that recent flooding from the Guadalupe River in Texas that destroyed homes and summer camps in the early morning hours of July 4 has claimed at least 129 lives, with more than 170 still unaccounted for.
The National Oceanic and Atmospheric Administration (NOAA) reports that flooding is the most damaging physical climate hazard in the U.S. Between 1980 and 2024, flood-related damages across both inland and hurricane events have totaled an estimated $1.7 trillion, accounting for nearly 60% of all billion-dollar disaster losses across hazard types, and it’s not improving. The frequency and intensity of these events have also surged as in the last decade alone; flooding has grown to be 3.7 times more likely and 13.6 times more costly than in the 1980s.
Should the Trump administration begin to restructure or dismantle FEMA, lenders would lose the framework they have long relied upon for assessing flood risk in mortgage portfolios. Past lapses in the NFIP show how disruptions can ripple through the system. Because the NFIP requires periodic congressional reauthorization, policy delays can halt the issuance and renewal of flood insurance, creating backlogs and uncertainty in the mortgage pipeline.
A recent lapse in 2010 delayed or canceled an estimated 1,400 home sales per day, stalling around 40,000 transactions before the program was reinstated. FEMA restructuring could lead to more frequent credit losses and deepen housing affordability and financing challenges in flood-prone regions.
Click here for more on First Street’s report “High Water, High Stakes: FEMA, Flood Risk, and the NFIP.”
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