Weathering the Storms? Bad News for Florida Home Loan Holders
Whether you currently hold a Florida mortgage loan or are thinking of applying for one, the following pieces of news could be discouraging:
- First, there were the news reports out of Florida that nine tornados, up to F3 in force, had dropped out of the darkness, seriously damaging or destroying 1,500 buildings and killing 20 people in the central part of the state.
- Next was a report from The Intergovernmental Panel on Climate Change, which effectively eliminated further discussion on the reality and cause of Global Warming. The Panel’s report stated that there is a 90 percent certainty that humans and their greenhouse gas emissions are causing warming and that global temperatures could rise by an average of 4.5 degrees by the end of the century.
How do these weather-related happenings and reports affect the Florida housing market? Read on.
News reports of the tornado damage brought a fiscal truth home to roost. Victim after victim, pawing through the wreckage of their homes, told reporters that they were uninsured, either because their insurance premiums had skyrocketed into the realm of unaffordable over the last few years or because their insurance had been cancelled outright.
Therein lays the danger to homeowners and maybe to the whole economy.
According to Ceres, a national network of investors, environmental organizations and other public interest groups, homeowners’ insurance coverage is at risk in coastal areas that have been hard hit by seven hurricanes in the 2004 and 2005. Ceres’ statistics include the following:
- FLORIDA: As of last March, 225,971 homeowners’ property policies were cancelled and 224,868 policies were not renewed for Florida home mortgage holders. About 489,418 new policies were written by both private insurers and Citizens, the state-operated high risk pool. Allstate Insurance had plans to let lapse about 120,000 policies in Florida by the end of 2006 following cancellation of 95,000 policies in 2005.
State Farm, the state’s largest insurer announced it would not renew 39,000 windstorm policies in 2006 and plans to cancel all master condo policies. Premiums were doubling for windstorm insurance in many parts of the state with owners of 1,500 sf. homes facing premiums of $10,000 for wind damage alone with total insurance costs of $13,000 and deductibles of up to $18,000.
So, what happens to a homeowner with a Florida mortgage who can no longer obtain homeowners’ or flood coverage?
Failing to carry coverage is generally considered an act of default on the mortgage, and while the lender is unlikely to start legal proceedings, it will probably “force place” coverage with a high risk insurer. This can be many times more expensive than traditional insurance and lenders will usually only arrange coverage for the amount of the mortgage and not insure contents or owner liability.
And what if you are buying or selling a house in an affected area? If you can’t find insurance you can’t get a mortgage. More likely, you will be placed in your state’s excess risk pools.
Citizens is expected to soon be the largest carrier in Florida and has been charged with inefficiency and even corruption. Some states are now considering or have enacted a surcharge and/or higher rates on privately issued policies to help fund their high risk pools. But, if weather-related claims continue at the pace of the last few years it is unlikely that even state and federal coverage will be sustainable.
Then what happens to the housing market?
