Wells Fargo, the second largest mortgage servicing company in the country, has been contacting its customers to notify them that thet do not have adequate Flood Insurance. Apprently, this company has seen an opportunity to take advantage of a new revenue source - Flood Insurance. Normally your coverage requirement has to atl east be the current mortgage amount. However, the laws governing the required coverage are vague and have left the door open for this company and other to make it a requirement to have your Flood Insurance at the same level as your Hazard Insurance. For the vast majority of people this will be useless coverage as it would take a complete loss of the structure by water to recoup the full value that they are requiring your coverage for.
The Federal Emergency Management Agency ("FEMA") which offers Flood Insurance coverage up to $250,000 for the structure and an additional $250,000 for interior property. Again, in order to get the maximum from FEMA the Flood level would have to be to roof level. Although there are areas in the country that this can and does happen the vast majority of people in flood plains will not suffer more than a few inches or feet of damage. Basically, all of the additional coverage will be going right into the pockets of the insurance carrier and government. Many large banks have affiliated or subsidiaries that offer insurance. If you do not get the coverage required, then Wells Fargo will force place an insurance policy as it would do if you did not carry the necessary Hazard Insurance. If you follow the money you shouldnb't be surprised if you find that these companies utilized by Wells Fargo are affilaites or subsidiaroies of the parent company. FEMA, the FDIC, Fannie Mae and Freddie Mac are all on board with this movement as everyone stands to make money in this matter.
It seems that this scheme is now being adopted by the largest mortgage servicing company in the country, Washinton Mutual Home Loans, Inc., as well. There is no current regulation of the additional Flood Insurance premiums you will need to pay above the maximum FEMA amount. Therefore, the insurance industry can set whatever rates they wany for this extra "Piggy-back" coverage. Do what you can to contact your legislators, your state's National Flood Insruance ("NFIP") Coordinator, the National Association of Insurance Commissioners ("NAIC") and media to fight this from becoming a standard.
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