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Banks, farm insurers and community lenders warn of mortgage escrow shortfalls and farm exposure from higher deductibles
Summary
Banking and Farm Bureau witnesses told the committee higher percentage wind/hail deductibles and rising premiums risk escrow shortfalls and large out-of-pocket costs for borrowers; Farm Bureau and regional banks also flagged reinsurance retention increases and concentrated hail exposure for poultry and farm operations.
Local banks, Farm Bureau representatives and community lenders described immediate consumer and lending risks from the hard insurance market.
Jason Tennant of CS Bank said percentage wind/hail deductibles and larger deductibles tied to replacement-value increases could create sudden out-of-pocket demands for homeowners. "That's a real concern because... first-time homebuyers, low- to moderate-income borrowers... a lot of those folks aren't gonna have 10 or $12,000 laying around," Tennant said, describing scenarios where escrow accounts fall short and mortgage payments must rise or foreclosures could follow if borrowers cannot cover new expenses.
Michael Sowell of Farm Bureau Mutual emphasized reinsurance cost spikes and higher retentions that force carriers to raise consumer deductibles; he said hail aggregation in parts of Arkansas and clusters of poultry houses increase local exposures. Farm Bureau and insurers noted surplus-lines and other options exist but may not be covered by the guarantee fund.
Representatives asked for clarification on replacement-cost policy definitions and whether buyers of mortgages (Fannie Mae/Freddie Mac investors) would object; Department staff said they contacted major institutions and received no material objections but flagged the consumer-protection question when a replacement-cost policy includes an ACV roof endorsement.
Committee members requested the department work with lenders and insurers to monitor escrow impacts, share NAIC data results, and return with recommendations to limit borrower harm.
