Some 30-Year Mortgages Now Require Up To 40% Down On Coasts, In Flood Zones; Local Banks Offloading
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Home buyers are increasingly using mortgages that make it easier for them to stop making their monthly payments and walk away from the loan if the home floods or becomes unsellable or unlivable. More banks are getting buyers in coastal areas to make bigger down payments — often as much as 40 percent of the purchase price, up from the traditional 20 percent — a sign that lenders have awakened to climate dangers and want to put less of their own money at risk.
And in one of the clearest signs that banks are worried about global warming, they are increasingly getting these mortgages off their own books by selling them to government-backed buyers like Fannie Mae, where taxpayers would be on the hook financially if any of the loans fail. “Conventional mortgages have survived many financial crises, but they may not survive the climate crisis,” said Jesse Keenan, an associate professor at Tulane University. “This trend also reflects a systematic financial risk for banks and the U.S. taxpayers who ultimately foot the bill.”
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If climate change makes coastal homes uninsurable, Dr. Becketti wrote, their value could fall to nothing, and unlike the 2008 financial crisis, “homeowners will have no expectation that the values of their homes will ever recover.” In 30 years from now, if global-warming emissions follow their current trajectory, almost half a million existing homes will be on land that floods at least once a year, according to data from Climate Central, a research organization. Those homes are valued at $241 billion.
Currently, new research shows banks rapidly shifting mortgages with flood risk off their books and over to organizations like Fannie Mae and Freddie Mac, government-sponsored entities whose debts are backed by taxpayers. In a paper this month in the journal Climactic Change, Dr. Keenan and Jacob T. Bradt, a doctoral student at Harvard University, described the activity, which suggests growing awareness among banks that climate change could cause defaults. Tellingly, the lenders selling off coastal mortgages the fastest are smaller local banks, which are more likely than large national banks to know which neighborhoods face the greatest climate risk. “They have their ears to the ground,” Dr. Keenan said.
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https://www.nytimes.com/2020/06/19/climate/climate-seas-30-year-mortgage.html?action=click&module=Top%20Stories&pgtype=Homepage
