Guest essay by Eric Worrall
CNBC thinks banks aren’t taking climate change seriously when making mortgage decisions.
The mortgage industry isn’t ready for a foreclosure crisis created by climate change
PUBLISHED THU, JAN 17 2019 • 7:00 AM EST | UPDATED 4 HOURS AGO
- The threat to real estate from increasingly extreme weather brought on by climate change is clear, but the threat to the nation’s mortgage market is only beginning to come into focus.
- In Hurricane Harvey’s federally declared disaster areas, 80 percent of the homes had no flood insurance, because they weren’t normally prone to flooding.
- Serious mortgage delinquencies on damaged homes jumped more than 200 percent, according to CoreLogic.
A foreclosure crisis spurred by climate change is becoming a real threat to the mortgage industry as extreme storms and other natural disasters increasingly occur in places where borrowers might not have flood or fire insurance.
As an example, Hurricane Harvey, which struck in August 2017, flooded close to 100,000 Houston-area homes. In Harvey’s federally declared disaster areas, 80 percent of the homes had no flood insurance, because they weren’t normally prone to flooding. Serious mortgage delinquencies on damaged homes jumped more than 200 percent, according to CoreLogic.
Houston could have seen a massive foreclosure crisis were it not for strong investor demand in the market. Houston’s economy was strong before the storm, and its housing stock was lean. After the storm, investors swarmed the market, offering troubled homeowners an easy way out, largely in cash.
Investor purchases of 10 or more properties jumped nearly 50 percent in the year following Harvey, according to Attom Data Solutions. Some were large-scale buyers, like Cerberus Capital and HomeVestors of America.
Others were smaller home flippers, like JP Patel, who was still buying properties at a crowded auction event in Houston last October. His company, Texas-based Myers, has purchased 80 Harvey-damaged properties.
“As an investor, it was kind of a perfect opportunity,” said Patel. “We literally can avoid the whole problematic nature of the foreclosure process.”
Obviously you can’t count on this kind of rebound happening every time, a severe flood during a depressed property market could cause prolonged additional pain. However there is no evidence storms are getting worse.
There is a substantial thermodynamic limit on the severity of the world’s weather, which is mostly ignored by climate doomsday prophets.
As for sea level rise, a few mm / year sea level rise is not going to create significant additional risk over the lifespan of most current mortgages.