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
Diana Olick
Erica Posse
- 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.
In a related story … beachfront property in Malibu continues to sell for RECORD $$$ prices … despite “global warming sea level rise” (sic).
https://www.yahoo.com/entertainment/david-geffen-sells-oceanfront-malibu-compound-record-price-203410997.html
Not to mention a major fire thatt burned to the sea.
Yes. Those buyers have to be nuts.
“nuts/crazy” people with lots of money.
its just not fair.
there should be some kind of wealth distribution scheme so smart & sane people like you and me aren’t held down by the manipulated capitalistic system that controls most of the world.
even fair systems, like those in venezula, are cheated into submission by the rest of the world.
it just isn’t fair … it’s nuts.
As I recall, Gore bought beach front property after he became the High Priest for Global Warming.
Nuts? Or just savvy? I suspect he knows the truth. And knows a sucker population when he sees it.
Or they are better at reading science than is the average climate alarmist.
“I will believe that it is a crisis, when they act like it is a crisis.”
— Glenn Reynolds
“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.”
Capitalism at work instead of government bailouts.
Those evil investors gave an ‘easy’ way out. In cash. What a worldview.
People’s democracy of Calizuela demands end of this atrocity. Investor money need to be given to poor Mexican LBTQ refugees to reach instant social justice.
Of course,it was Harvey the tropical storm that did all of the damage. It did not act like the typical hurricane in any respect. Hurricane Harvey died upon reaching dry land. I remember over 10 years ago, when fear of increasing hurricanes caused State Farm to pull out of the Florida market. This caused a lot of policyholders to cancel their State FArm auto insurance and , since there were no deadly hurricanes hitting Florida for many years thereafter, State Farm lost a ton on money.
State Farm pulled out because the Florida Insurance Commission would not allow them to cherry pick what they would insure and what they would not. State Farm wanted to write auto but not wind. They had to offer coverage of all types of insurance or none at all. They chose none.
I do not think that State Farm was guilty of trying to cherry pick. I think the Florida insurance commission was guilty of making everybody else pay for Florida’s hurricane insurance. CA did this years ago with car insurance.
” I think the Florida insurance commission was guilty of making everybody else pay for Florida’s hurricane insurance. ”
Joel, not sure what you mean by that. Florida has a state operated insurance of last resort, Citizens, to allow homeowners who cannot get wind coverage in the open market because private companies would not write in certain areas. Of course what started out as a good idea was corrupted as Citizens became the main insurer of a majority of coastal homes. Originally the premiums for Citizens were supposed to higher than any commercial insurance but that morphed into competitive rates. I was with Citizens due to my location but as the insurance market changed in Florida after years of no hurricanes, I was offered a better deal by one of the smaller companies now operating in Florida so I switched. All of these smaller companies must have re-insurance to cover their potential losses. So far so good but if we ever again have two years like 2004 and 2005 I still wonder if these smaller companies can sustain.
In any event, this is one of the reasons I am considering moving to Henderson NV.
The lunacy in CA regarding auto insurance is even more obvious. In CA automobile liability insurance is required by law. But, all automobile loans require that you carry “uninsured driver” coverage in the event you are hit by an uninsured driver.
Uh, RocketScientist, in California, “… [vehicle] liability insurance is required by law …” for vehicles registered in California. You are well aware that we see a lot of out-of-state and out-of-country license plates here in SoCal – tourists in the summer, snowbirds in the winter. Are they required to have vehicle liability insurance to operate here?
There are actually a lot of California drives driving around without liability insurance. When I lived there I saw estimates as high as 20%.
Had a fender bender with one. He just laughed.
At the time 1981 ,I just paid out of pocket to fix it. Cost less than my deductable.
The illegals don’t carry insurance. But they do drive.
A friend in Arizona has been hit & run’d 4 times in the last 6 years; from what she tells us it is standard practice in the Phoenix area.
(What States don’t require liability ins ?)
Even in Indiana we have many uninsured illegal aliens driving around. My old boss was hit by one nearly two decades ago while riding his Harley. Ruined the bike and put him in the hospital. The Mexican didn’t even have a driver’s license, or the vehicle registered. But since he was illegal the most they could do was ship him back to Mexico. Not surprisingly, he was spoted back in Fort Wayne, driving another truck, in six months. Before my boss was even off his crutches.
~¿~
Warren Buffet jumped into the Florida market for home insurance. He is a Democrat but no fool.
Similar thing happened in Texas with State Farm who are back, with others, but cautious and their doing homework. Unfortunately this has been complicated by Texas state windstorm who is now more expensive, despite claims of spreading the risk over the state and maybe not doing their homework adequately. And there is the federal flood program. In Aransas (Rockport) and adjacent counties we have the Mission-Aransas Research Reserve (https://missionaransas.org/) whose program buildings seem to have suffered more than they should have, also into policy like a lot of science. They, with other government involvement, with some reasonable people, some not so, are a mix into the capitalistic system, too often with cronyism and pork-barrel projects.
I recently drove by a commercial metal building going up in Blanco, 150 miles inland, that looked like it would withstand a hurricane better than some going up on the coast. Coastal areas will always require subsidies, are improving in some ways, but could do much better, as in rebuilding too low where Harvey had minimal storm surge, more present elsewhere. Every hurricane is different, sympathy for those who try to predict.
CNBC apparently cannot research even the simplest of issues. It is exceedingly easy to determine that global warming has not caused any increase in “extreme weather events” Even the alarmist IPCC admits that to be the case. CNBC – do you really trust their research into stocks and bonds after this ?
+10
The last time Houston had such a severe flood was in the 1920’s, so buying a residence that will flood every 90 or so years is not an unreasonable choice to make.
The overall Houston and general Texas economy is doing quite well, despite the flood, and people have to live somewhere.
“Such a severe flood”. “Such” being the operative word. I’ve loved here for the better part of the past 40 years; Houston has severe floods every 5-10 years. From the article:
“In Harvey’s federally declared disaster areas, 80 percent of the homes had no flood insurance, because they weren’t normally prone to flooding.”
No. 80% of homes had no flood insurance because the homeowners were to cheap to buy it.
Unless you live in a flood prone area, flood insurance in Houston is dirt cheap relative to the potential damage – just a couple hundred bucks. If there was a financial disaster in the wake of Harvey, the cause would have been irresponsible homeowners – not the hurricane.
“I’ve loved here for the better part of the past 40 years”
Same person?
Yup, that too 🙂
Outside of the FEMA 100 year and 500 year flood areas the flood risk is very low so it is not required by mortgage companies and is therefore rare everywhere, not just Houston.
Funny story. I live about 500′ from the edge of Johnson Creek 100 year flood plain in Portland Oregon. Last summer I received a survey from Reed College about if I knew about flood insurance and if I didn’t have flood insurance why. I pointed out to them that according to the topographic maps, flood water from Johnson Creek couldn’t reach my house without flooding half the city (which it can’t). But I accepted the gift card they gave me for filling out the survey anyway.
Most mortgages require flood insurance at the value of the property loan. At least, at the origination of the mortgage.
Less trusting mortgage lenders include flood insurance payments in the mortgage payments, plus a small handling fee, of course.
Since most mortgage companies do not check on status of customer purchased flood insurance, there are many who drop the insurance the first chance they get.
When buying a home in New Orleans, quite a few people swore that their neighborhood never flooded. Every one of them denied buying flood insurance.
It only takes a few minutes at the library to locate news reports about floods; coupled with an hour or two at the Parish Land Records offices to learn whether properties are officially designated flood plains or flood zones.
Diana Olick and Erica Posse are purposely misrepresenting facts in their article.
regardless of who bought flood insurance, the real questions surround whether Land plats are officially designated “flood zones”.
But, then they would not have been able to invent such frightening falsehoods for their fiction article.
Correct – my home was above the 100 year flood line. I was not required to buy flood insurance. My homeowners insurance was very clear that they did not cover water damage due to rising water. If the roof blew off, I was good. Flooded – I was on my own.
I bet your policy wouldn’t cover the water damage from the rain coming in the big hole where the roof used to be. Water damage by natural causes is typically only covered by flood insurance regardless of the cause.
Tom there have been a lot more severe flooding than you realize:
https://www.hcfcd.org/media/2381/historytimeline-24×36-1.pdf
I’ve looked at a topographic map of Huston. About the only things that aren’t in the flood plains are the freeway overpasses.
I thought some areas around Houston were still sinking from ground water extraction? That seemed to be the general assumption when I lived there many years ago. Of course that was back in the early days of GPS when they were still dithering the signal (i.e., “Selective Availability”) to limit the accuracy to something like +/- 10 meters or so. At least back then they blamed most of the flooding on that rather than ‘Climate Change’.
The extreme rainfall from Harvey was a coincidence of weather conditions. The existence of hurricanes is not from ‘climate change.’ The existence of blocking fronts is not from ‘climate change.’ The weather conditions existing as Harvey approached Texas were understood, and weather forecasters said out loud that Harvey would stall and bring extreme rainfall.
‘a foreclosure crisis created by climate change’
Citing Harvey as climate change is a lie. But they can’t stop themselves, can they?
Took a vacation in Miami Beach recently. Those here will remember this island poster child for catastrophic sea level rise. There was an obvious construction boom going on in this very expensive place. The real world versus the scary scenario world.
UPS carbon neutral
Shipping a package UPS and saw this option. You have the option to buy an offset. Wonder what % of customers select this.
I remember reading about 100 year mortgages back when property in Tokyo was getting astronomic in price.
Sea level rise is the least of Houston’s problem. This map, http://texaslandscape.org/site/wp-content/uploads/2015/07/TLP_Map127_HoustonSubsidence1.jpg shows that there is up to 10 FEET of sinking around the center of town. I bet the investors noted this issue when they selected their properties.
At the end of Eric Worrall’s article, we have his comment about a Science journal article, apparently developing a physics model that limits the amount of storminess that a warming atmosphere can be expected to cause? The provided link goes to a semi-paywalled AAAS site for the full article (myself, I admit I am not inclined to take the time to register to attempt to read the journal article for free).
I just want to make a skeptical comment here that — with respect to any seriously incisive or critical experts who may easily know more than I do about “moist atmospheric heat engines” — isn’t this all quite ivory tower and speculative in essence? Skeptically speaking, it is just this sort of modelling effort, focused on small general temperature increases, that “always” seems problematic to me.
Just on basic principles, surely it is true that you can’t get any sort of increased windiness without first generating some kind of pressure differential to drive the wind as such? How can anyone validate that this is going to happen more strongly or more often on the basis of assuming a very small per year, or per decade, increase in temperature in the earth’s atmosphere overall? If there is no special reason to assume an increased temperature gradient anywhere (or at least one should assume no measurable or significant increase in *difference* in temperature from one spot on the earth to another), then, by the same token, one might think there should be no significant change in pressure differences either?
If this skeptically “blah-zay” assumption of mine is essentially correct, one might wonder why anyone would predict *any* increased windiness, storminess, etc., due to “warming climate”?
Yes unfortunately they have tightened up the paywall, it used to be accessible.
The point as I recall is the world’s weather is powered by the sun, there is a limited amount of work available to power the world’s weather regardless of what happens to the temperature of the atmosphere or water vapour content. All that water vapour still has to be evaporated, and there is a limited amount of energy available to do that evaporation – if it keeps falling as rain it depletes the energy available to do other work like drive the world’s winds.
No need to doubt yourself when you are right.
Most of these studies and models are the equivalent of “How many angels will fit on the head of a pin” theological musings that clerics were famous for in the past.
Don’t believe this skeptical attitude is anti-science. Scaring the hell out of people and basing public policy on science by the pound is the problem in my opinion.
The threat to real estate from increasingly extreme weather brought on by climate change is clear
Am I missing something here ? What exactly is clear ?
At what rate are EF4 or greater tornadoes going to happen due to climate change ?
At what rate are Cat 4 or higher hurricanes going to happen due to climate change ?
Etc., etc., etc.
Actuarials what to know.
It is almost funny how certain baseless sentences keep popping up, verbatim.
Is there a Style Book issued regularly to progressive journalists (I repeat myself) with the required “phrase of the month identified?
You don’t need to be a Woodward or Bernstein to check the veracity of the sentence you just wrote.
Has anyone ever examined the role that Ernst and Young play in such situations?
https://www.ey.com/us/en/services/assurance/climate-change-and-sustainability-services
Warmistas have to continue to recite the great list of Climate disasters that we face. as when we look outside we can see no evidence of them at all. This is standard propaganda technique. A lie repeated often enough becomes the ‘truth’.
Harvey’s floodwaters got to my curb, a couple feet above the 100 year flood line. The big problem was that the counties (Harris and Fort Bend) had allowed developers to build within the dikes of the two flood control reservoirs (Barker and Bear Creek). This can be clearly seen via Google Maps – satellite view. They disclosed to the buyers only at closing that they were in the flood control basin – very classy. I would have sued both my real estate agent and the seller’s agent for misconduct. Barker reservoir was not yet full when they began dumping water at a high rate into the Buffalo Bayou, which wanders through Houston to Galveston Bay. Bear Creek was full and starting to come over the emergency spillway. They were worried that they would lose containment, so they opened the gates and flooded even more people downstream by raising the flood waters an additional couple of feet. Hopefully this was a once-in-a-lifetime event. Interestingly, the year before had significant flooding as well, just not in Houston. That one was called the Tax Day flood.
After the storm, investors swarmed the market, offering troubled homeowners an easy way out, largely in cash.”
Jeez more white privilege.
So hurricanes are new? These imbeciles in fancy suits spouting their tripe over the airways…why anybody watches them or takes them seriously is mind boggling.
Does anyone know of a mutual or hedge fund that invests in coal and nuclear energy, insurance companies providing flood ins., etc, and shorting all businesses green ( like Tesla)? Essentially betting against AGW with their money, and kind of like the “sin funds” that invest in tobacco companies and casinos?
If there were no flood insurance, except that underwritten by private insurers, casual observers would see little or no change in coastal development. The private market might offer insurance. If non-economical, those living on the coast would do so uninsured for flood. Big whoop. These aren’t mostly cheap homes. There would be more construction where the first level could be sacrificed, and easily rebuild. There would be more construction that could survive flooding with cleaning. Many would realize that their possessions needed to be evacuated too, or move to an available attic when the waters come. The foresightful would have enough cash reserve to live well during the chaotic months following a flood; perhaps many would pair the home with a small one bedroom condo in a floodproof part of town, perhaps offered by the same developer building the homes. So I can only build 80% of the house there, investing 20% in the flood insurance condo. And many, perhaps most, living in homes for only a few years at a time, would simply take the risk, and deal with the consequences after. And the market would help them adjust afterwoods; good jobs will be available as construction booms. Same with living in earthquake or fire prone areas. A free market is fully capable of assessing and pricing the risks; buyers fully capable of making their own decisions, and government fully capable of bolluxing up the whole thing, typically doing the wrong thing for the wrong reason. A government that now wants to prohibit me from building in an area because that government has mismanaged an insurance business that that government should not have been in in the first place is, sadly, typical. (Yes, I’m living in a flood zone 1 by choice & understand the risks. )
“If non-economical, those living on the coast would do so uninsured for flood. “ That was the case before the government got into the flood insurance business. But then, every time there was flooding the uninsured raised a ruckus, screamed at their representatives and fully expected the government to bail them out. I guess to their representatives offering cheap flood insurance was the government’s way of at least getting some of their disaster expenses covered.
I don’t know what ever happened to the idea but back years ago when the Mississippi flooded badly and Mississippi Queen riverboat could practically file direct from St. Louis to New Orleans there was talk of the government’s insurance program only paying for a single replacement of those properties located within the flood plain. It was even suggested that the government take over ownership of the flooded property when paying off the claim. Guess they never figured out how to make that acceptable.
One of the ‘morals’ of this story is that, if land use regulation (zoning restrictions, code requirements, etc, etc) result it a tight housing market then private investors are much more likely to come in and buy destroyed property with the probability that they will be able to profit on the exchange. And the government need not step in and spend ANYTHING? – what a novel idea!
Most US sceptics have very little idea of the impact of climate change outside the US. Lucky for them they don’t live in a country being drastically impacted by it: https://www.dw.com/en/mali-resisting-climate-change/av-446484799
[Dupe comment in two other threads. .mod]