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.”