I know I haven’t shown a lot of sympathy for the subprime mortgage “victims” who borrowed more than they could ever afford. I also don’t think bank screw-ups on the paperwork should give free houses to deadbeats, but the lenders should go back and get the paperwork right before foreclosing, even if it does give the borrowers a few more months of rent-free living.
I hope it’s also clear that I think conventional Fannie and Freddie borrowers that put up 20% cash or paid for mortgage insurance and fully disclosed their income are not the villains in this play.
With that background, I am now in the middle of a very strange change in the rules of the game that I find grossly unfair.
When I bought my antique house more than 10 years ago, I sent the house appraisal to my insurance agent, and got a “full replacement” homeowner’s insurance policy.
At the time, I was paying for insurance that would cover nearly twice what I paid for the house. I didn’t mind, because I knew that I would be putting lots of money into restoration. In fact, I put more money into the restoration (so far) than the house cost to purchase.
I had a new lifetime-guaranteed roof put on. I had a couple of sections of the foundation and sill repaired. I put in three zones of central air conditioning, with Hepa air filtration in each air handler. I took out one of the two furnaces, and took out the steam radiators.
I had exterior cedar siding replaced where flashing on the foundation wasn’t quite right and water damage occurred. I replaced a 1940’s kitchen with a modern professional chef’s kitchen. I got all four fireplaces working with new stainless steel top-down dampers that prevented weather and rodents from getting in. I updated the downstairs bathrooms and made the decision to live on the first floor and keep working as money and inclination allowed, now that the mechanicals and weather envelope were up to snuff.
I added two electrical subpanels for my office and the new kitchen. I replaced the cheesy triple-track storm windows somebody had used to enclose a slate terrace, and had the room redone with plaster walls, double-hung windows, wooden beadboard wainscot paneling and antique barn beams, and lots of integrated wiring for modern telecom and office equipment.
I had an excavator come and create new drainage around the house and the driveway, carrying all water away into the town storm drains or to another area of the property where a hill slopes down below the level of the basement floor. Another contractor installed a permanent sump pump and basement water drainage system that took away both seepage and dehumidifier flow, and pumped it into the exterior drainage system.
That was expensive, and took several years.
Anyone who has restored an old house would probably agree that this is how it should be done. In the mean time, my art and some of my antique furniture and rugs have been wrapped up tightly, awaiting the day when everything is done before going up on the walls and into all the rooms.
Each year since 2000, my insurance carrier increased the insured amount by at least 5%, and some years as much as 12%. When my policy came up for renewal last spring, I was stunned by what all that compounding had done. I was expected to pay for three times as much insurance on the house as I could get for selling it. And that puts zero dollars valuation on the 2.5 acre lot in a nice neighborhood that the house sits on.
I called my agent, and said I’d like to lower my coverage to a number that roughly 25% more than my mortgage, a number that I could easily use to build a replacement if my house burnt to the ground. Seems reasonable, right?
The only way I was going to be able to insure my house for less was to change companies.
After changing companies (and saving a few bucks), the new company sent around a young (mid-20’s) inspector who apparently came from some third party insurance inspection service.
A month or so after the inspector came by, I got a letter forwarded to me by my insurance agent with several suggestions.
At least I took them as suggestions.
First was repair of the ceiling and roof above an old stain way up at the top of a vaulted ceiling around a river-rock fireplace that stands about 18 feet high in the main living room. I actually pointed that out to the inspector because it was on my mind at the time, and I had already made arrangements to have both the ceiling and the very old flashing addressed, since the roofer had not replaced the flashing, but had put the new roof on and bent that old lead flashing back into position. I’d had it checked, and some of the pointing was loose, so I decided to do it right with re-pointing and new lead flashing by the same methods as had been done in the 1920’s, so it would last another 60 years or so. I thought it showed what a responsible homeowner I was. Silly me.
The second suggestion was just silly — the suggestion that I put a heat sensor in the kitchen with the professional cooktop. The alarm company decides that, not insurance inspectors, at least in my world. There were sensors on the ceiling just outside the kitchen for both rooms (and a staircase) that opened onto the kitchen. I assume the reason they do that is so I won’t have a visit by the fire department every time I crank up the really big burner to do some wok cooking or boil a lobster pot.
The third was open-ended, and just crazy. She suggested I “repair” the cracks in the old plaster.
I took it for what I thought it was worth, and went on with life.
Then I got a letter from my insurance agent asking whether I had addressed all the issues raised. Actually, it was a letter from the new insurance company asking, and saying they needed a response within 45 days.
My personal alarm bells went off. Were they about to cut off my homeowner’s insurance? That would put me in technical default on my mortgage!
Even though I’m still paying them for twice the coverage needed to pay off the mortgage, and easily 150% of the cost of building a new house with all the space and features of this one, this would be a six-figure expense.
I’m not pulling down big bucks these days, and just don’t have the money to be addressing what I consider cosmetic issues. If a chunk of the old horse-hair plaster ceiling happened to come down in the oldest section of the house, I would certainly have it repaired. On the other hand, it’s been hanging in there for more than 200 years, so the urgency just doesn’t seem to be there for me.
Anyway, I began the process of shopping for a new insurance carrier by talking to a couple of agents in the area.
One worked for an insurance company, so he carried only their insurance. His quote was actually higher than the current questionable carrier. His quote was for the identical amounts of coverage.
I asked why it couldn’t just be set at a round number close to 125% of my mortgage, which also works out to plenty of money to replace the house with all its nice features if it should burn down. Yes, I wouldn’t have horse-hair plaster on wooden lath or hand-hewn beams with wooden pegs any more, but I could live with that. (Or maybe I could have the beams, because the contractor that did my office found a 150-year-old barn being taken apart to provide the beams in that room.)
The insurance company agent said that his company uses third party inspectors, and he couldn’t quote a lower amount until after an inspection. What if I got the same 20-something inspector that only understands new sheet rock walls and thinks hairline cracks in ancient plaster is some kind of hazard?
The other agent carries a number of lines, and told me when he did a walk-through that I would have to commit to a completion date for the upstairs renovation, the replacement of the old and scary steep staircase (which is on the list) and yes, the re-plastering. What? I should come up with well over a hundred thousand dollars right now, live in an insane construction site, deal with flaky contractors, etc., just to get homeowners’ insurance?
His response was that they only want to write new insurance if they are taking the risk of fire damage to a cast iron anchor at the bottom of a lake.
Monday morning I’ll be asking whether my old company will take me back after 20 years of high premiums paid and never a claim. I guess that will teach me not to complain about paying for three times as much coverage as I could sell the house for.
But it gets better. I was talking to my ex, and she told me that homeowners’ policies have really changed. She’s one of those people that reads every word of the fine print. It turns out there are 22 breeds of dog that you can’t own if you want coverage.
So there you have it.
In the constant effort to maximize shareholder value, the insurance companies have created a whole new way to throw us out of our houses, and push all risks onto their customers.
If you get a German Shepherd and they find out about it, you can have your insurance canceled. If you complain about paying for seven figures in insurance on a house worth a fraction that much, you can find out that other insurance companies can come in and give you a six-figure expense before they’ll even cover you. Worse yet, they’ll cover you with a phone call, and only tell you about all the extra conditions after you’ve ended your other coverage. It feels just like bait-and-switch to me.
It’s pretty clear to me that the six figures of insurance premiums I have paid these last few decades weren’t enough to keep the companies from trying to figure out how to take more from me, and never pay a dime out if I have a loss. If I didn’t have a mortgage right now, I’d be considering going self-insured, and I’d look at all those years of paying into the system as yet another way I helped make America the best place to be a financial company.
The only other option I can figure out in all this is that I may have to let my mortgage company start keeping my money in escrow for taxes and insurance, and have my coverage be for total disaster paid to my lender, not ordinary loss due to storm, fire or liability. Mortgage companies will have the negotiating power I don’t have. They’ll also only cover themselves, I’m sure. And of course, I’ll be stuck making a huge interest free loan to my lender by setting up an escrow account.
It’s situations like this that make me think about defaulting on the mortgage and letting some unknown investor subsidize my cost of living. If I didn’t have a mortgage, I could choose to have no insurance at all, or only buy insurance for liability and a $100 – $200K for repairs assuming my happily-supported local fire department shows up as quickly as they did when a storm set off the alarm a couple years ago.
I doubled my annual contribution to the fire department after that. But they aren’t a business, just the people I really would call in an emergency.
Would somebody explain to me again how wonderful everything is when we just let private enterprise handle it? Could you please tell me how it came to be that I should be happy paying for three or four times as much insurance as I need, because shopping around only makes it worse? How can it be a competitive market when they all turn to the same outside service to determine how much insurance you need?