How climate change could spark the next home mortgage disaster
A recent article in Politico highlights the massive risks that climate change poses to Fannie Mae and Freddie Mac, the federal home lending entities.
Homes located outside of the federally-designated 100-year floodplain are not required to carry flood insurance. With climate risk analytics beginning to place red flags on homes spanning from California's fire-prone hills to seaside New England, home values are threatening to fall en masse-- which would prevent homeowners from being able to afford to repair their homes in the event of natural disasters, and leave the federal government footing the bill. The impacts on Fannie Mae and Freddie Mac's trillion-dollar portfolio could be big enough to "knock the economy into a recession, or worse", according to the article.
"More significantly, federal taxpayers hold greater than 60 percent of mortgages on homes in some areas outside the specially designated federal floodplain," according to an analysis cited in the article.
Going forward, Fannie Mae and Freddie Mac must find a way to lower the climate vulnerability of its portfolio, which could risk depressing entire housing markets by inhibiting future lending in them-- essentially the opposite of its intended mission to make mortgages available across the board.
"With explicit missions to promote the American dream of homeownership — and prodded through the years to expand opportunities to traditionally underserved racial and ethnic communities — Fannie Mae and Freddie Mac simply aren’t geared to choke off those opportunities to combat a future of more floods, stronger hurricanes and faster-spreading fires," says the article.