Wall Street mortgage bankers panic over climate change – Mother Jones

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This story was originally posted by Grist and is reproduced here as part of the Climate Office collaboration.

An unexpected constituency is sounding the alarm on climate change: American mortgage bankers.

Their predictions are dire: As climate change worsens and natural disasters wreak havoc on America’s housing stock, homeowners are increasingly defaulting on their mortgages. Growing financial losses are forcing lenders to raise interest rates. Fannie Mae and Freddie Mac, the huge government-backed companies tasked with supporting affordable housing, continue to issue loans in risky areas, subsidizing homes in danger. Private sector investors in the housing market are moving away from communities facing severe climate risks, such as sea level rise, repeated flooding and more severe forest fires. The economic losses, which could easily run into the billions of dollars, are borne by the federal government and ultimately by the taxpayers.

It’s all according to a new report by the Research Institute for Housing America, a think tank founded by the Mortgage Bankers Association, a professional group representing the real estate finance industry.

“Climate change will impact all governments, industries and individuals,” the report notes. “Housing and housing finance will not be spared.

The US real estate market is made up of a wide variety of stakeholders, including landlords, tenants, lenders, insurers, government backed entities, loan officers, and the federal government itself. As climate-related disasters continue to wreak havoc, each group faces different risks and consequences, according to the report. Homeowners on the path to hurricanes and other weather disasters can see their home’s value plummet. If homeowners experiencing increasingly severe floods and fires default on their mortgages more and more, it will spill over into the entire financial ecosystem. Lenders and investors could suffer significant losses as a result. The federal government is in the middle of it all: it manages the National Flood Insurance Program, which is responsible for 5.1 million residential flood insurance policies nationwide, and supports Fannie Mae and Freddie Mac. The specter of massive bailouts looms large.

This is not a distant scenario. The national flood insurance program is already heavily in debt. The program currently represents more than $ 20 billion underwater, and search for The Pew Charitable Trusts, a nonprofit public policy organization, found that about 1 percent of properties listed in the program are responsible for 25 to 30 percent of claims. The cost of settling claims for repeatedly flooded properties is over $ 12 billion.

“Will there come a time when the public is no longer willing to fund these programs? Said Sean Becketti, former chief economist at Freddie Mac and author of the report. “If you live in Iowa, how much do you want to pay in taxes to protect people from coastal flooding? There is going to be real political stress on these programs because they are going to become much more expensive.

The report is the first from the Research Institute for Housing America since the think tank’s inception in 1998 to take an in-depth look at the many ways in which climate change is likely to reshape the mortgage industry and the housing market in general. He is adamant in his assertion that climate change is real, that it will profoundly affect housing and housing finance, and that no industry player will be able to escape the consequences. With federal regulators start to examine the risks that climate change poses to the housing market and the economy in general, Adam DeSanctis, spokesperson for the Mortgage Bankers Association, said group members are preparing for the impact of climate change and potential regulatory requirements . “Everyone knows this happens on the road,” he said.

The report says climate change will test the limits of insurance and the ever-growing risks from global warming will stress lenders, investors and the government. Companies that attempt to quantify these risks and place a dollar value on them face practical challenges in doing so. Climate models are uncertain and depend on actions governments can take now to reduce emissions. There are as yet no standardized indicators of climate risk. And historical measures of climate risk are not available.

“It’s a pretty difficult task,” Becketti said. “There is no obvious way to do things that all regulators would be comfortable with and approve of.”

Many players in the mortgage industry, including banks, lenders and investment firms, are already make business decisions depending on climatic risks. Using private and public data on the evolution of risks posed by climate change, some companies manage their investments away from disaster prone areas. However, the approaches are varied and inconsistent. Without clear federal guidelines or industry standards on how to use data and price risk, each institution is developing its own method, according to Becketti.

“The results are not very comparable,” he said. “One company says it has a lot of risk, but maybe it doesn’t have as much as the next company that has a more optimistic estimate.” The inconsistency could create an uneven playing field where major institutions continue to support housing investment in the wrath of climate change.

Clarity on how to assess climate risk may still take years. Earlier this year, President Joe Biden issued a decree task various federal agencies with developing recommendations and reports that assess the financial risks of climate change and propose solutions. The Federal Housing Finance Agency has also comments solicited on regulatory measures it may take to deal with the risks on Fannie Mae and Freddie Mac’s books in January. And separately, the Securities and Exchange Commission asked for public comment on how companies should disclose climate risks on their books. This is the first step in demanding more transparency from companies on how climate change may affect their bottom line.

Thursday’s report makes it clear that the country’s housing sector is starting to see the writing on the wall. “Climate change triggered by global warming has already happened and will continue to occur at a rate difficult to predict in the future,” one reads. “Its global impacts are significant, and the housing and housing finance sectors will feel those impacts along with all other industries. “


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