U.S. taxpayers are at risk for homes threatened by climate change
By Irina Ivanova and Rachel Layne
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The growing threat from natural disasters like hurricanes and floods could leave U.S. taxpayers footing the bill for damage to properties battered by rising seas. The reason: Mortgage lenders — mostly Wall Street banks — are selling loans for homes in vulnerable coastal areas to Fannie Mae and Freddie Mac, according to a working paper released by the National Bureau of Economic Research.
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Ouazad and Matthew Kahn, a professor of economics at Johns Hopkins University, looked at natural disasters between 2002 and 2014 that each caused at least $1 billion worth of damage. Such events increase the chance that homeowners will default on their mortgage or, if they have flood insurance, pay off the mortgage early. The analysis included property data on 18 states along the Gulf Coast, ranging from Texas up the Atlantic seaboard.
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In the period immediately following 15 hurricanes, lenders issued more mortgages for homes in coastal areas, the study found. Those loans were then "securitized," or bundled up and sold to other financial entities, including Fannie and Freddie, which are backed by the federal government.
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The Trump administration has proposed privatizing Fannie and Freddie, which were bailed out after nearly collapsing during the 2008 financial crisis. On Monday, the White House took the first steps toward that goal, which if completed would eventually reduce the risk for taxpayers.
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