An Insight analysis from Freddie Mac for April focuses on flood challenges the industry faces, the current system in the United States for dealing with flood risk, and questions that will have to be addressed if climate change raises sea levels significantly.
The Freddie Mac Insight analysis notes for key findings with respect to its view that flooding due to climate change. Here they are:
- Insurance is an essential component of real estate transactions, and flood insurance currently makes it possible to obtain loans for homes in areas of identified flood risk.
- Some of the varied impacts of climate change -- rising sea levels, changing rainfall and flooding patterns, increasing temperatures -- may not be insurable. As a result, some important features of housing finance may have to change.
- A large share of homeowners' wealth is locked up in their equity in their homes. If those homes become uninsurable and unmarketable, the values of the homes will plummet, perhaps to zero. Unlike recent experience, homeowners will have no expectation that the values of their homes will ever recover
- In the housing crisis, a significant share of borrowers continued to make their mortgage payments even though the values of their homes were less than the balances of their mortgages. It is less likely that borrowers will continue to make mortgage payments if their homes are literally underwater. As a result, lenders, servicers and mortgage insurers are likely to suffer large losses.