We had the subprime lending crisis. Are we headed toward a climate-change-linked mortgage crisis?
That puts the health of the mortgage market at risk, a potential repeat of the financial conditions at the root of the banking crisis a decade ago, a research paper published Monday argues.
Absent change, the mispricing is only going to be aggravated, the paper notes, with $60 billion to $100 billion in new mortgages issued for coastal homes each year. Freddie Mac’s then–chief economist Sean Becketti in 2016 wrote that “the economic losses and social disruption [of rising seas on coastal housing] may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession.”
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 biggest challenge at work here, according to researchers Ouazad and Kahn, is that there’s little incentive to make borrowing for homeownership more difficult, meaning costlier for homebuyers, even when it comes to shouldering climate-change risk.
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