Study Warns Banks Shifting Risky Mortgages Onto Taxpayers, As Climate Crisis Threatens Homes
'As Climate Crisis Threatens to Put More Homes 'Literally Underwater,' Study Warns Big Banks Offloading Risky Mortgages Onto Taxpayers.' "This is insane," commented one climate campaigner. Common Dreams, Sept. 27, 2019.
New research first reported on Friday by The New York Times suggests banks are shifting mortgages made riskier by the climate emergency over to financial institutions backed by U.S. taxpayers—findings that "echo the subprime lending crisis of 2008, when unexpected drops in home values cascaded through the economy and triggered recession.". It elicited immediate critiques and concerns regarding banks' actions and the sweeping potential consequences for American taxpayers and the global economy.
The research is set to be published Monday as a National Bureau of Economic Research (NBER) working paper entitled Mortgage Finance in the Face of Rising Climate Risk (pdf). Co-authors Amine Ouazad of HEC Montreal and Matthew Kahn of Johns Hopkins University analyzed how lenders have handled mortgages in U.S. regions hit by destructive hurricanes between 2004 and 2012. "They found that, after those hurricanes, lenders increased by almost 10 percent the share of those mortgages that they sold to Fannie Mae and Freddie Mac, government-sponsored enterprises whose debts are backed by taxpayers," the Times reported.
NYT, 'Climate Risk In The Housing Market...' https://www.nytimes.com/2019/09/27/climate/mortgage-climate-risk.html
According to the newspaper: Selling mortgages to Fannie and Freddie allows banks to avoid the financial risk that homeowners will default on the mortgages. Hurricanes increase that risk. Mr. Ouazad and Mr. Kahn found that the odds of an eventual foreclosure rise 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 regulations governing Fannie and Freddie do not let them factor the added risk from natural disasters into their pricing, which means banks and other lenders can offload mortgages in vulnerable areas without financial penalty. That increases the incentive for banks to make the loans and then move them off their books, the authors said..
As unsustainable humanity activity continues to drive up global temperatures, which scientists say is making extreme weather worse, a growing number of homeowners impacted by natural disasters could default on their mortgages—which, according to the new paper, banks are selling to Fannie and Freddie. The researchers warn the impacts could be felt across the country. "We're talking about a loss that's going to be borne by United States taxpayers," Ouazad told the Times. Noting that up to $100 billion in new mortgages are issued for coastal homes annually, he added, "we're not talking about a small number.".. The Times noted, economists at Fannie and Freddie have previously expressed concerns about climate-related risks such as rising seas.
Freddie Mac's then-chief economist Sean Becketti warned in 2016 that "the economic losses and social disruption may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession."
~ "In the housing crisis, a significant share of borrowers continued to make their mortgage payments even though the values of their homes were less than the balances of their mortgages," Becketti explained. "It is less likely that borrowers will continue to make mortgage payments if their homes are literally underwater. As a result, lenders, servicers, and mortgage insurers are likely to suffer large losses."...
More, https://www.commondreams.org/news/2019/09/27/climate-crisis-threatens-put-more-homes-literally-underwater-study-warns-big-banks
- People wait to be rescued from their flooded homes after the area was inundated with flooding from Hurricane Harvey on Aug. 28, 2017 in Houston, Texas.
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