This house in the Greene County town of Prattsville, pictured last September, was knocked off its foundation and severely damaged by floodwaters from Tropical Storm Irene. (File photo)
U.S. Sen. Charles Schumer is asking for an investigation of whether lenders have forced homeowners with federally insured loans to buy excessive flood insurance coverage.
Schumer, D-N.Y., said in a press release this week that insurance coverage amounts for some homeowners have been than three times the market value of their properties.
?When a home is worth say $80,000 on the open market and it has a $40,000 mortgage, why is the bank requiring $250,000 of insurance?? Schumer said. ?On the one hand, it doesn?t add up ? who is scratching whose back? On the other hand, it slams homeowners with hundreds or even thousands of dollars a year in extra insurance premiums that they can ill-afford to pay.?
Schumer spokesman Matt House said the problem was highlighted before Tropical Storms Irene and Lee struck New York state last summer by the owner of a Syracuse property who was forced to buy $200,000 in coverage when there had been only $25,000 remaining on the mortgage of a house destroyed by a flood.
House said Irene and Lee, which stuck in late August and early September 2011 and devastated properties in the Catskills and Hudson Valley, created concerns that mortgage lenders would have more opportunities to force excessive insurance coverage.
?Any time there is a major flooding event like Irene or Lee, we have to be on guard against unscrupulous lenders who may be looking to earn a quick buck,? House said. ?This is certainly a wide-scale problem beyond those hit by last year?s flooding. The (U.S. Consumer Financial Protection Bureau) needs to do a complete and thorough review, now more than ever, to ensure flood insurance polices are fair and appropriate.?
Flood insurance policies received significant attention following the tropical storms in communities such as Prattsville, in northwestern Greene County, where nearly 120 buildings were damaged, including 54 homes that required repairs before their owners could return. Information on the number of property owners in Prattsville who had flood insurance was not immediately available, but officials were encouraging property owners to participate in federal programs that Schumer says have requirements for coverage.
Schumer, in a letter to the Consumer Financial Protection Bureau, said the law is clear in placing limits on the amount of insurance required of homeowners.
?The U.S. Department of Housing and Urban Development ... states, ?For loans, loan insurance or guarantees, the amount of flood insurance coverage need not exceed the outstanding principal balance of the loan,?? he said. ?HUD is very clear that flood insurance coverage does not need to exceed the balance of one?s mortgage. However, New Yorkers from Syracuse to Long Island have been told by their lenders that flood insurance must be purchased not just to cover the outstanding principal?s balance of the mortgage, but coverage must also be high enough to cover the cost to completely replace a home.?
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