U.S. Sen. Charles Schumer, D-N.Y., called on the Consumer Financial Protection Bureau (CFPB) to investigate whether lenders are pressuring homeowners to purchase higher levels of flood insurance coverage than is required by law.
Schumer referenced recent reports out of Central New York alleging that insurers are requiring homeowners to purchase insurance coverage in the amount of the replacement cost of their home, rather than the outstanding principal amount of their mortgage.
The Flood Disaster Protection Act of 1973 requires property owners to purchase flood insurance for buildings within a designated Special Flood Hazard Area, but does not mandate the level of insurance coverage. However, Department of Housing and Urban Development (HUD) guidelines provide that the legally required coverage amount is that of the “outstanding principal balance.”
On May 21, Schumer called on CFPB Director Richard Cordray to investigate.
Schumer highlighted recent reports of a Syracuse, N.Y., resident with a $25,000 mortgage, that was forced to purchase coverage for the amount it would cost to rebuild his home in the event of a flood, rather than the cost for the balance of his mortgage. Schumer’s office said the cost of the coverage is over $200,000, which is nearly three-and-a-half times the value of the resident’s home.
Schumer said the CFPB should investigate to ensure that homeowners in Syracuse or any other region are not being pressured to pay for a higher level insurance coverage than is required by law.
“When a home is worth say, $80,000 on the open market and it has a $40,000 mortgage, why is the bank requiring up to $250,000 of insurance?” Schumer asked. “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.”