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Weather Has Long-Term Effect On Mortgage Costs

October 1, 2019

Global warming could be driving up the cost of mortgages. That’s even for homeowners who live nowhere near a coastline nor sites of continued weather incidents.

 

According to a MarketWatch report, some banks are cutting their own climate-change exposure by selling riskier disaster-area mortgages to taxpayer-supported entities. The researchers, Amine Ouazad, a professor in the department of applied economics at HEC Montreal, and Matthew Kahn, a professor at Johns Hopkins University, say their findings show “a potential threat to the stability of financial institutions.”

 

The paper’s authors studied the behavior of mortgage lenders in areas hit by hurricanes between 2004 and 2012, with at least $1 billion in damages. They found that, after those hurricanes, lenders increased by almost 10% the share of coastal mortgages offloaded to Fannie and Freddie.

 

The researchers found that the odds of an eventual foreclosure rose by 3.6 percentage points for a mortgage originated in the first year after a hurricane, and by 4.9 percentage points for a mortgage originated in the third year. The researchers also pointed out a different risk for banks: that some markets will be better insured or even better prepared than others for rising climate risk.

 

To learn more about weather’s effect on the mortgage markets, click on the image above. 

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