Concerned that increased insurance rates caused by new flood zone maps will “tip the balance” for homeowners who weathered the economic downturn but are still feeling its effects, Massachusetts Attorney General Martha Coakley testified Thursday in support of proposed state legislation that would reduce those costs by tying the amount of insurance to mortgage balances.
“We believe that dramatically increased flood insurance rates will tip the balance for many homeowners who weathered the economic downturn, but are still feeling the residual effects of the housing crisis,” Coakley said before the Massachusetts Joint Committee on Financial Services about the new flood zone maps introduced by the Federal Emergency Management Agency (FEMA).
“Without this help, we are gravely concerned that many additional homeowners will face foreclosure,” Coakley said.
The legislation, titled “An Act Relative to Flood Insurance,” was filed by Coakley and Massachusetts House Speaker Robert DeLeo, and co-sponsored by state Rep. James Cantwell, Rep. Garrett Bradley, Rep. Josh Cutler, Rep. Bruce Ayers, Rep. David Vieira, Rep. Vinny deMacedo and Senator Robert Hedlund.
The bill would prohibit creditors from requiring homeowners to purchase flood insurance in an amount that exceeds the outstanding balance of their mortgage, requires coverage for contents, or includes a deductible of less than $5,000.
Proponents of the measure say tying the amount of coverage to the outstanding mortgage balance, instead of a higher amount, would lower premiums for the homeowners impacted by the new change. Homeowners would still have the option of purchasing a greater amount of insurance.
The proposed legislation would also require banks, in each instance flood insurance is required, to provide a notice to homeowners explaining that insurance coverage tied to the outstanding mortgage amount will only protect the current mortgage interest, and may not be sufficient to pay for repairs or property loss after a flood.
In January, the U.S. Senate approved bi-partisan legislation that postpones rate increases until FEMA assessed the impact of an overhaul to the flood insurance program. Republicans in the U.S. House recently presented their own version of a flood insurance overhaul.
The omnibus government spending bill passed by Congress last month contained a provision to put off higher premiums required by new flood maps at least through the end of September. However, it appears that it would take FEMA another year or longer to get its re-mapping and rating program back on track.
Source: Massachusetts Attorney General’s office
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