A state lawmaker has announced plans to file a bill in response to escalating flood insurance rates for thousands of South Carolinians.
State Rep. Leon Stavrinakis’ proposed legislation would prevent banks from foreclosing on homeowners who are current on their mortgage but cannot pay flood insurance premiums.
The bill would change state foreclosure law to eliminate failing to pay for federal flood insurance as grounds for default, the Charleston Democrat said.
“In our view, these are people already in their homes who used conditions as they existed to decide whether to buy their homes,” he said. “Now, in effect, the federal government is going in and rewriting the terms of their mortgage.”
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Stavrinakis said his legislation would aim to temporarily resolve ill effects from flood insurance payments that have tripled in some places in South Carolina.
The skyrocketing rates are the result of a bill passed by Congress that gradually eliminates subsidies that kept flood insurance rates low for properties built before the first local flood maps were drafted in the mid-1970s.
While the highest concentration of properties with subsidized policies is along the S.C. coast, Richland County ranks fifth among counties with 617 of its 2,400 policies receiving subsidies, according to the Federal Emergency Management Agency. In Lexington County, 459 of the nearly 1,350 policies receive them.
Congress says the increased rates will return the National Flood Insurance Program to solvency after huge payouts from Hurricanes Katrina in 2005 and Sandy in 2012.
But Stavrinakis, other state legislators, real estate agents and property owners say the measure squeezes some homeowners and makes other properties nearly impossible to sell, causing havoc in the housing market.
Some who recently purchased property are seeing their rates increase tenfold when their policies are up for renewal, while rates for second homes or rental units are climbing nearly 20 percent a year, with more increases expected.
Lowcountry real estate agents say deals have fallen through after prospective buyers realized the cost of insurance, which can run more than $10,000 a year.
“It makes certain properties, and by extension, certain areas unsellable,” said Scott Bingham, a real estate agent with Ballenger Realty in Beaufort. He cited middle-class neighborhoods such as Mossy Oaks and Pleasant Point and high-end beachfront property as places that have become tough sells.
Lenders will see more properties go into foreclosure as rates climb, said Nick Kremydas, CEO of the SC Realtors trade group.
“We’re going to have a very large inventory of properties that banks will inherit and be unable to dispose of,” he said.
Federal lawmakers from coastal states, including U.S. Rep. Mark Sanford and Sen. Tim Scott, both S.C. Republicans, have supported delaying the congressional act, which took effect last year.
On Wednesday, the U.S. Senate is planning a procedural vote on legislation to delay the premium increases by about four years.
Until Congress acts, however, Stavrinakis says his bill, which he plans to file soon after the legislative session starts Tuesday, will help hurting homeowners.
“The fix here is long-term, and Congress has to move,” he said. “They need to understand that Sandy and Katrina were aberrations, generational events. It doesn’t mean the (National Flood Insurance Program) isn’t solvent; it’s been solvent for 40 years.”