Jenna Fountain will carry a bucket to Regency Drive on September 1, 2017, to retrieve items from a flooded home in Port Arthur, Texas.
Emily Cask | AFP | Getty Images
Record rains, floods and wildfires are examples of the increased risk to the US housing market due to climate change.
Mortgage lenders and investors say they are not ready to measure the risk as well as mitigate it. New report From the Housing American Institute of the Mortgage Banking Association.
Sean Beketti, author of the report and former Chief Economist of Freddie Mac, said:
Mortgage finance includes consumers, landlords, mortgage builders, appraisers, mortgage originators and servicers, insurance companies, mortgage investors, government agencies, and government-sponsored companies that issue mortgages (Fanny Mae and Freddie Mac). There are many interested parties, such as. This means that climate change puts a lot of pressure on the long-term financial side.
Climate change not only puts more stress on the National Flood Insurance Program, but also increases the risk of mortgage defaults and prepayments, causing adverse selection of the types of loans sold to GSEs and increasing mortgage volatility. The transition, according to reports, may create a significant climate.
For example, a lender who securitizes a loan with GSE may face additional costs of agency and guarantee insurance to cover contract or guarantee breach in a large financial transaction, and GSE will meet the requirements in response to climate change. The risk increases as you revise.
More specifically, the GSE may require lenders to perform additional due diligence to determine the need for flood insurance, and delays in updating official flood maps will flood lenders. You may be forced to incorporate additional sources of risk information. As a result, GSE may not be allowed to buy a loan for a flood-risk home.
In addition, the National Flood Insurance Program Large-scale overhaul, This will change the homeowner’s price. It affects the value of homes and, as a result, the value of the mortgages that underpin those homes.
The biggest problem today is the uncertainty of mortgage stakeholders.
“They are wondering what to do next above all else. There have been no changes to the rules affecting companies in the mortgage market, but they are being considered,” Beketti said.
Today, the mortgage market relies heavily on the insurance industry to measure its risk.
However, most mortgage industry risk models focus on credit risk and operational risk.
Sanjiv Das, CEO of Caliber Home Loans, said: “The industry does not model climate risk very well and relies mostly on FEMA or insurer models.”
However, the Federal Emergency Management Agency is already very stressed by the record amount of natural disasters in the last few years. Mortgage lenders may be at risk of loss if FEMA changes what it supports.
In addition, borrowers evacuated due to natural disasters can default on their mortgages.
Following Hurricane Harvey in Houston in 2017 Mortgage industry leaders warned A potential climate seizure crisis when a storm floods homes in the Houston area near 100,000 homes. 80% of homes were not covered by flood insurance because floods are usually less likely to occur in areas affected by the federal government of Harvey. According to CoreLogic, serious mortgage delinquency in damaged homes has skyrocketed by more than 200%.
Estimated default costs are a central factor for banks, lenders, investors, and mortgage servicers to assess profitability, as are allowance for doubtful accounts and economic capital.
“If climate change incremental defaults prove to be important to one or more of these stakeholders, regulators and investors will tell these stakeholders the impact of these incremental defaults. It may require that the sensitivity of these estimates to key assumptions be measured. “Becketti said in the report.
Following the Hurricane Harvey in Houston, Texas on August 30, 2017, you’ll see flooded homes near Lake Houston.
Win McNamie | Getty Images
Finally, mortgage investors who are already seeking more information from lenders about climate risk may also withdraw, reducing the liquidity of the mortgage market.
This week, the Securities and Exchange Commission letter It sent to public companies asking them to provide investors with more information about their climate risks. This letter details the physical and economic risks of climate disasters, as well as the risks of climate-related regulations and changes in business models. The banking industry is probably the beneficiary, although it has not designated a specific company to receive it.
The question is how to optimally measure such risk.While now New cottage industry For American companies and companies that measure all aspects of climate risk to the housing market, there is no standard risk measurement for investors.
“Investors have built a sophisticated risk model for default and severity, but are new to analyzing God’s actions,” said Bildalus, president of Finance of America Mortgage.
“Today, investors are avoiding these potential risks simply by not buying loans. As fires, hurricanes, earthquakes, volcanic eruptions and concentrated floods become more commonplace, investors are lenders of mortgages. We need to act as an actuarial insurer and build a risk model to ponder. God’s act, “he added.
The mortgage market is not ready for climate risk, industry reports say
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