Borrowed time: Climate change threatens U.S. mortgage market

From Politico

“Everyone is exposed” as taxpayer-backed loans and insurance face a coming storm.


06/08/2020 04:30 AM EDT

U.S. taxpayers could be on the hook for billions of dollars in climate-related property losses as the government backs a growing number of mortgages on homes in the path of floods, fires and extreme weather.

Violent storms and sunny-day flooding are on the rise, and more houses are being built on at-risk land. But fewer people are buying federally backed flood insurance despite requirements that homeowners in flood plains be insured if their mortgage is backed by taxpayers.

In short, the government’s biggest housing subsidies — mortgage guarantees and flood insurance — are on course to hit taxpayers and the housing market as the effects of climate change worsen, a POLITICO analysis finds. A series of disasters in a single region could trigger a full-blown housing crash.

“Where catastrophe happens and physical climate really manifests itself, the public tab will end up carrying this,” said Ivan Frishberg, vice president for sustainability banking with Amalgamated Bank. “Everyone is exposed in this. I’ve had conversations with all of the big banks and we are kind of all aware of this.”

That scenario has a growing collection of finance experts, progressives and congressional Democrats pressuring financial institutions and their regulators to give more weight to the systemic risks of climate change.

To understand the risk, consider Fannie Mae and Freddie Mac, the government-sponsored, taxpayer-backed enterprises that stand behind roughly half of the nation’s $11 trillion in residential mortgages. For decades, the companies have bought and guaranteed home loans in floodplains and other places vulnerable to natural disasters.

To reduce risk, the companies rely on another government enterprise, the National Flood Insurance Program, to cover the cost of flood damage to homes with Fannie and Freddie mortgages. But the flood insurance program itself is insolvent after years of paying out more than it collects. When Congress tried to fix the program in 2012, it was forced to backtrack after flood insurance premiums billed to homeowners spiked.

Despite public reassurances that the risk of climate-related loss was minimal and insured, Fannie Mae sounded an alarm at least as early as 2017, according to a confidential document obtained by POLITICO.

“[O]ur potential exposure to flooding-related risk may not be fully captured under NFIP insurance coverage,” the company wrote in a request for proposals that sought to put a dollar value on its flood-related risk. The previously unreported solicitation set a deadline of April 2017 for vendors to submit a report, according to a consultant who received the request but was not chosen for the job.

Freddie Mac chief economist Sean Becketti had acknowledged as much in a report a year earlier.

“Some of the varied impacts of climate change — rising sea levels, changing rainfall and flooding patterns, increasing temperatures — may not be insurable,” Becketti wrote. “As a result, some important features of housing finance may have to change.”

A Freddie executive said the company “conduct[s] significant data-driven analyses of the impacts of natural disasters.” A spokesman for the Federal Housing Finance Agency, which regulates the companies, said the companies “are proactively assessing potential risks and exposures from natural disasters.”

Fannie and Freddie have long been a deadly third rail in U.S. politics, especially after the 2008 housing collapse led to their $190 billion bailout. Since April 2019, the companies have been under the regulatory oversight of one of their biggest critics, Mark Calabria, a free-market economist who now leads the Federal Housing Finance Agency.

In January, Calabria reorganized the agency, establishing a Division of Research and Statistics that reports directly to him and will collect data on climate risk instead of relying on Fannie and Freddie to provide it themselves.

“I’d rather not be dependent on them for all of my decision-making, or even a small percentage of my decision-making,” Calabria said.

“We want to know what [the] flood risk is, for instance, on Fannie and Freddie’s book,” he said in a February interview. “We don’t have the capacity to do that today, but our capacity over time [will] get there. And this is true about any sort of risk — wildfire, flood, wind.”

Full article here.

53 thoughts on “Borrowed time: Climate change threatens U.S. mortgage market

  1. Surely, flooding existed before Fannie Mae came into existence. In any case, it does bother me that people build homes in flood zones and rebuild multiple times using government backed insurance. Bad decision making should not be rewarded.

    • First of all the generic use of the words “flood zones” is incorrect. Flood zones have hazard ratings, only those in zones designated as SFHA that contain an “A” in the rating require flood insurance for federal backed mortgages.
      Second, any rebuilding, remodeling or changes that are more than 50% of the assessed value of the home REQUIRE the home to be raised above the base flood elevation. So no, people cannot continue to rebuild over and over again without mitigation. There are limits and restrictions to the amount of insurance coverage a home can have through the federal program.

      • Thanks Tom for exposing the lie being perpetrated here.

        a growing collection of finance experts, progressives and congressional Democrats pressuring financial institutions and their regulators to give more weight to the systemic risks of climate change.

        Oh, I thought this was supposed to be an objective financial argument. Odd that it’s only an issue for “progressives” ie it’s partisan.

        Clearly the “data” in question are the worthless extrapolations of failed climate models, not ACTUAL data.

    • In Laguna Beach, there is an area along the 133 Highway where home are built on steep mountain sides. About every ten years, we have nice rains in the Winter, leading to lush vegetation in the Spring, leading to fires in the late Summer, and finally heavy rains in the Fall leading to the houses sliding down the hillside.

      I still remember one father crying that this was the third time his family had lost everything from their house sliding down the hill. I would say everyone was aghast at the stupidity at rebuilding on a known unstable site… but then, the reporter was all about hos he needed Federal and State aid to rebuild his home. Unbelievably to me, I am in the minority at thinking this man is an idiot for building there, and the county is greedy for allowing him to build there.

      • Let him build where ever he wants. just let him pay for the cleanup and the rebuild all by himself. Stupid never learns unless stupid has pain associated with it.

    • So I guess Obama and Bill Gates and the others, who recently bought oceanfront/beachfront, don’t have to worry about the water or the money.

    • Exactly!

      Read the first paragraph. Looked at the author’s names and jumped down to the comments.

      • That’s what I did, too.

        Especially when I read this part: “In short, the government’s biggest housing subsidies — mortgage guarantees and flood insurance — are on course to hit taxpayers and the housing market as the effects of climate change worsen”

        Or course, there is no evidence Human-caused climate change even exists. Something has to exist before it can worsen. It seems the authors, like nearly all alarmists, are putting the cart before the horse by assuming Human-caused climate change is real when there is no evidence for it.

        Countless people have been led astray by the Climategate Charlatans and their human-caused climate change lies. Include these authors in that bunch.

    • Well stated. The climate extremists are working hard to push lies at every opportunity.

  2. Bill Gates is terrified of global warming and sea level rises. His answer this year, spend $40m on a beachfront mansion. How did he do on the insurance front?

    • There is something suspicious about that purchase or at least something more to the story.

      By billionaire standards it’s a dump in a congested area. The purchase price of $43 million was $38 million more than it sold for in 2017 and apparently, according to Zillow, it was to have gone to foreclosure auction on 3/1/20 for $7 million unpaid loan balance.

      If real journalists existed, by and large, there would be more reporting on it.

    • Same with Barack Obama.
      Buy a house on Martha’s Vineyard a stone’s throw away from the ocean.

  3. We need to quit subsidizing homes in known flood area. Much of the money for the federal flooding insurance program goes to wealthy people who own vacation homes on the oceanfront.

    Just stop it. Let the market determine the risk and the costs.

  4. OT: More from Windy, Warmy Alarmist Bedwetters

    New York Approves Largest Wind Farm Ever, But Not Everyone Is Happy About It
    What is happening in the state of New York regarding the addition of more renewable energy assets is a microcosm for what is going on in many other parts of the US and around the world. Everybody supports the idea of renewable energy (Liar!), but not everyone wants it in their community.

    (and the final paragraph)
    Social Justice Is A Goal
    In a perfect world, everyone would agree that transitioning to renewable energy is essential and would be volunteering to help in any way they could. They would be offering to move the picnic table in the backyard to make room for a few solar panels or a wind turbine. But the world doesn’t work that way. The fight for proper siting of renewable energy projects will be long and contentious.
    The most important aspect of the battle is not to use the siting of renewable energy facilities as a cudgel to do more damage to poor and under-served neighborhoods the way the fossil fuel industry has done in the past. Renewable energy should bring new economic and social justice opportunities to all, not just some.

  5. This is more of an argument as to why the government should not be buying/subsidizing mortgage securities than anything about climate change. Governments are notoriously bad at pricing risk.

    • Governments are notoriously bad at pricing everything. The typical GS11, who’s never had their own skin in the game on anything, is always out maneuvered by corporate personnel.

  6. “When Congress tried to fix the program in 2012, it was forced to backtrack after flood insurance premiums billed to homeowners spiked.”

    In other words, people objected when their subsidies were reduced, so congress caved.

    • People objected to the major increases all at once. As usual, it then became wholly political and ended up nowhere. Keep in mind that there are huge local property tax levies on these properties. Local governments do not want to devalue them and lose all that money.

    • The system is broken and needs to be fixed. But the 2012 bill was along the lines of, “The insurance premium is going to be about the same as the mortgage. Your house might as well be worthless because nobody is going to buy it with these premiums. And since you can’t afford them yourself, you should just walk away.”

      Not to mention people who bought outside the floodplain or coastal velocity zone sometimes found themselves within such a location after map revisions.

      Congress has been too busy with sideshows to worry about it since.

      • There was a grandfather provisions in the NFIP that could be used when the original house was built out of a SFHA that was later remapped into a SFHA that would then require you to purchase flood insurance or have an increased premium. You we able to keep the non flood requirement designation or the lower premium but I do not know it they removed that clause when they updated the NFIP law.
        I was actually re-mapped OUT of a SFHA in 2016. People say “Wow, you are lucky”. I look at is having paid unnecessary flood insurance for 15 years.

  7. Apparently Barack & Michelle weren’t too worried when they purchased sea side on Martha’s Vinyard.

  8. Odd, but FEMA flood data shows no increase for the past 24 years. Must be bad data since the narrative says otherwise.

  9. There is no doubt the NFIP program needs to be redone with premiums set to reflect the coverage needed.
    However, every time the flood insurance program comes up, too many people comment on what they think they know about it. How about doing some research first about how the program works and what the limitations are before posting incorrect assumptions.

  10. [catastrophic] [anthropogenic] Climate cooling… warming… perturbations threaten kitchen sinks.

  11. homes in the path of floods, fires and extreme weather.

    Proximity and environmentalism, and Nature’s reconciliation including #HerChoice (e.g. pathogens).

  12. Funny about how all these organizations, corporations, cities, states and counties all support the climate change agenda and claim it’s an existential threat. But if they really believed, wouldn’t they stop ocean front development? Shouldn’t NYC, Miami, San Francisco, Seattle, Portland, etc., etc. all ban development in at risky areas?

    Makes you wonder about their sincerity.

    On the other the hand, they all believe they have the answers. The Green Raw Deal is the flavor-of-the-day solution. Perhaps they are counting on these programs being adopted soon.

    • The simple answer is the local government gains too much in local property taxes to care weather waterfront property gets flooded. The local government doesn’t suffer any revenue loss in flooding of those properties, they only lose revenue if the taxable value goes down. Their first priority is to continue to collect those high taxes as long as they can before any changes in value come about.

  13. What’s the problem here? . . . we have been told repeatedly that the world will end/be disastrously unrecoverable by 2030, if not earlier.

    So, take out the longest-term mortgage possible (at least 30 years, 50 years if you can find one) at the lowest interest rate possible, and you won’t have to worry . . . it’s a side benefit of CAGW, don’t ya know.

    And yes, you can forget about paying for mortgage guarantees and flood insurance . . . they won’t matter in the end.

    /sarc off

  14. At last, I can understand why Seattle has become the armpit of the Northwest.
    Governor Jay Inslee knows that Seattle will be under water, so why try to save it from political unrest.

  15. This is evidence that the Climate Crusades are now running on autopilot AI robots. They left the robot running with a key word dictionary to pair up with climate change and it’s now running with all the word combinations. Next up is quantum robots to fling them all at once while the operators fly off to conferences at the beach resorts.

  16. Wait, wait, wait. I’m confused. Are we supposed to feel sorry for rich folks with the stress of oceanfront properties? Or is this about taxpayers being expected to cough up money to compensate rich people for not enjoying their waterfront properties fully? The rich people who travel via private jet to tell us peons to avoid air travel so as not to possibly harm their waterfront beaches?
    The left is very confusing these days! I’m old enough to remember when the left stood up for good jobs for average families, not making life easier for the ultra rich. I guess that dates me.

  17. Did they use Representative Concentration Pathway 8.5, or is this just “common knowledge” of climate change?

    The idea of an ‘urban hydrograph’ has been studied for years. Urban growth (streets, parking spaces, houses, and other) hardens the surface and …
    Rainfall runs off the land faster, the peak is higher, and time of peak is shorter.
    See – from 1968:
    Hydrology for Urban Land Planning-
    A Guidebook on the Hydrologic
    Effects of Urban Land Use
    by Luna B. Leopold
    Geological Survey Circular 554

  18. Fannie and Freddie has a flood insurance scam. Regardless of where your house you are buying is located Fannie and Freddie require you to buy flood insurance.

      • I would go further, Tom, and say it’s not even wrong.

        No one in the US is required to buy flood insurance. If you want to be covered, then you buy it.

        I live less than a mile from the waters of Puget Sound. But I’m at 220′ elevation. The only flooding I need to worry about would be an IMMENSE tsunami, and at that point, I’d just say screw it.

        • Only those with mortgages that are federally backed require flood insurance IF you are in a designated SFHA. Even then, each property is individually rated how the building sits compared to the base flood elevation. So if you buy a piece of land in an AE zone but you build your lowest living level above the base flood elevation, you are not required to have flood insurance. All homes built in my area are now built this way because it is required by building codes.
          I will say this though. If you are not in a SFHA but are near large retention ponds, streams or drainage ditches you should buy it anyway as a precaution because it is very inexpensive for those cases.

          • You will actually have to purchase Flood insurance no matter the elevation of your property if you are still n a flood zone. It will be lower cost but you will still purchase it.

          • Flood insurance is not required when you are in flood zones designated as Zones B, C, and X.

    • I ld construction worker, if someone told you that, they are trying to scam you. The claim you are making is false. Flood Insurance is offered through the National Flood Insurance Program, NFIP. That is part of FEMA. FNMA and FMAC have no flood policy to either offer or force anyone to purchase.

  19. Climate change- the quasi-religious fascistic
    anti-science extremist movement sweeping the workd- threatens everything, not just mortgages.

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