  Prior literature has argued that flood insurance maps may not capture the
extent of flood risk. This paper performs a granular assessment of coastal
flood risk in the mortgage market by using physical simulations of hurricane
storm surge heights instead of using FEMA's flood insurance maps. Matching
neighborhood-level predicted storm surge heights with mortgage files suggests
that coastal flood risk may be large: originations and securitizations in storm
surge areas have been rising sharply since 2012, while they remain stable when
using flood insurance maps. Every year, more than 50 billion dollars of
originations occur in storm surge areas outside of insurance floodplains. The
share of agency mortgages increases in storm surge areas, yet remains stable in
the flood insurance 100-year floodplain. Mortgages in storm surge areas are
more likely to be complex: non-fully amortizing features such as interest-only
or adjustable rates. Households may also be more vulnerable in storm surge
areas: median household income is lower, the share of African Americans and
Hispanics is substantially higher, the share of individuals with health
coverage is lower. Price-to-rent ratios are declining in storm surge areas
while they are increasing in flood insurance areas. This paper suggests that
uncovering future financial flood risk requires scientific models that are
independent of the flood insurance mapping process.
