Like most of these things it's advocacy and mission creep. It probably started off as a niche thing but as it expanded there are all sorts of groups that would lose if it disappeared: Realtors, title companies, local municipalities (police, teachers, etc...), mortgage companies, insurance companies (for all the other insurance). If they got rid of the subsidy people would move away and money would fly away from those locations.
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Nope, it was pretty straight forward. It was the 1968 National Flood Insurance Act. Flood prone communities get flood insurance in exchange Gov gets to manage building standards to reduce damage caused by flooding. It was pretty similar to what we are seeing today. There was a hurricane and the Mississippi river flooded. Private insurance started pulling out so the Government decided to step up.