House's Frank plays for time on flood insurance

By Kevin Drawbaugh

WASHINGTON (Reuters) - The troubled U.S. flood insurance program would be temporarily extended for seven months under legislation introduced in Congress on Thursday, in an effort to buy time for lawmakers to work out stubborn disagreements over reforming the debt-burdened program.

The short-term extension would prevent the National Flood Insurance Program (NFIP) from expiring as scheduled on September 30. Expiration could further unsettle already fragile U.S. housing markets by preventing mortgages in need of flood coverage from closing while the program is in limbo.

With Texas recovering from Hurricane Ike and the Midwest from heavy flooding, Rep. Barney Frank introduced the seven-month extension bill in the House of Representatives.

The Massachusetts Democrat said the bill would give negotiators time to complete work on a permanent extension and "assess the implications of the 2008 hurricane season."

"I am disappointed that a permanent solution is not before us, but we can and should extend the program while we work on that final bill," said Frank, whose proposal would push well into 2009 any final action on the program.

But Frank's counterpart in the Senate does not favor a temporary extension, according to his spokeswoman.

Sen. Christopher Dodd, chairman of the Senate Banking Committee, "believes the flood insurance program should be reformed, not merely extended," said spokeswoman Kate Szostak.

Congress has been unable to agree for months on whether to add wind damage coverage to the 40-year-old NFIP -- which insures millions of American homeowners in flood-prone areas -- and on whether to forgive its $18-billion debt.

The program has been swimming in red ink since Hurricane Katrina slammed into the Gulf Coast in 2005. The devastating hurricanes of that year and 2004 revealed deep problems in the program, but efforts to fix it have been unsuccessful.

The Senate voted in May to extend the program until 2013 and forgive its debt. The House also has voted to extend the program, but added a controversial wind damage coverage clause to its separate bill and refused to forgive the debt.

Big insurers with a stake in the issue include Allstate Corp (ALL.N), Nationwide Financial Services Inc NFS.N, Fidelity National Financial Inc (FNF.N), Travelers Cos Inc (TRV.N) and Hartford Financial Services Group Inc (HIG.N).

On Tuesday, Alabama Sen. Richard Shelby, the senior Republican on the banking committee, said the House would be "making a mistake" if it did not back down and accept the Senate's terms in negotiations over the program.

(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn and Jacqueline Wong)