NEWBURYPORT — Two leading state officials have filed a bill to cap the amount of flood insurance mortgage lenders can require of homeowners.
Attorney General Martha Coakley and House Speaker Robert DeLeo on Wednesday launched the initiative in the wake of new flood insurance rates that became law on Oct. 1.
The measure is a reaction to the concern of property owners whose flood insurance payments are going to rise significantly.
Hundreds of houses and businesses on Plum Island, along the Merrimack and Parker rivers and in low-lying marsh areas would be affected by the rising rates.
The most vulnerable are property owners who have mortgages. Banks that hold loans for homes and businesses erected beneath a flood level height of 13 feet are reviewing their portfolios with the possibility of having to raise rates considerably.
One state official said he’s heard of a property owner’s annual insurance payment skyrocketing from $3,500 to $65,000. Others said they’ve heard to rates rising ten-fold.
The proposed legislation, called An Act Relative to Flood Insurance, 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 induces a deductible of less than $5,000.
State Rep. Mike Costello, D-Newburyport, said that he supports the bill.
He sated that he and others are working to alter a situation that could put many homeowners at risk.
“This could be catastrophic,” Costello said. “I chair a financial services committee, including insurance, that is seeking ways to find relief, Massachusetts is greatly affected, and so are all coastal states.
“It will take a federal fix to make this right, and I am planning to go to Washington next month to talk with federal authorities,” he said.
State Sen. Bruce Tarr, R-Gloucester, called the change in rates “financially devastating.”
“The bill by Attorney General Coakley is good as a short term measure but we need to get involved with federal officials because, as property owners are becoming aware of this, it is evolving into a very serious real-estate issue.”
Coakley, in a press release, said that tying the amount of coverage to the outstanding mortgage balance, instead of the replacement value of the house, would lower premiums for the homeowners impacted by the new change.
“These new flood insurance changes are going to devastate many families and businesses in our coastal communities,” said Coakley, who visited Newburyport recently as part of her announcement that she is running for governor in 2014.
“We continue to urge the federal government to delay implementation of these changes . . . but in the meantime, this state legislation can help mitigate the impact of these costs on families and businesses,” she added.
The federal legislation that is fostering new insurance rates is the Biggert-Waters Flood Insurance Reform Act of 2012. The regulations are now law, and Oct. 1 was seen as a trigger date for the new measure to be implemented.
Legal authorities say the law was passed because federal authorities can no longer afford to subsidize flood insurance due to the increasing amount they are paying out for natural disasters, including damage from the recent Superstorm Sandy.
State and local officials gathered in Lynn several weeks ago under the auspices of the office of U.S. Rep. John Tierney, D-Salem, to discuss their concerns about rising insurance costs.
Several city councilors from Lynn said that much of that community lies within the new flood plain, and that “people with modest incomes are going to have trouble hanging on to their houses due to higher rates from this legislation.”
Costello and Tarr said the same could be true of Plum Island.
Many waterfront property owners have heard about the rising insurance costs but haven’t yet received a bill, in part because until today federal officials involved in the program have been on shutdown furlough.
“We’ve been talking to homeowners but Oct. 1 is the start date (of new rates), and this is just getting started,” said Jacqueline Page, president of Arthur S. Page Insurance Agency in Newburyport. “Each property is so different that I couldn’t comment on the proposed legislation. Homeowners have to review the policy, and talk with their bank and insurance agency.”
Coakley’s office said that insurance rates under the redrawn maps will not only increase for those already in the flood plain, but many homeowners and small businesses will be required to buy flood insurance for the first time.
The office said that some newcomers are now required to purchase flood insurance at costs of $10,000 and higher.