IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/98187.html
   My bibliography  Save this paper

Do Mortgage Lenders Respond to Flood Risk?

Author

Abstract

Using unique nationwide property-level mortgage, flood risk, and flood map data, we analyze whether lenders respond to flood risk that is not captured in FEMA flood maps. We find that lenders are less willing to originate mortgages and charge higher rates for lower LTV loans that face “un-mapped” flood risk. This effect is weaker for high income applicants, as well as non-banks and small local banks. However, we find evidence that non-banks and local banks are more likely to securitize/sell mortgages to borrowers prone to flood risk. Taken together, our results are indicative that mortgage lenders are aware of flood risk outside FEMA’s identified flood zones.

Suggested Citation

  • Kristian S. Blickle & Evan Perry & João A. C. Santos, 2024. "Do Mortgage Lenders Respond to Flood Risk?," Staff Reports 1101, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:98187
    DOI: 10.59576/sr.1101
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1101.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://www.newyorkfed.org/research/staff_reports/sr1101.html
    File Function: Summary
    Download Restriction: no
    File URL: https://libkey.io/10.59576/sr.1101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Cortés, Kristle Romero & Strahan, Philip E., 2017. "Tracing out capital flows: How financially integrated banks respond to natural disasters," Journal of Financial Economics, Elsevier, vol. 125(1), pages 182-199.
    2. Terry Dinan & Perry Beider & David Wylie, 2019. "The National Flood Insurance Program: Is It Financially Sound?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(1), pages 15-38, March.
    3. Amine Ouazad & Matthew E Kahn, 2022. "Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters," The Review of Financial Studies, Society for Financial Studies, vol. 35(8), pages 3617-3665.
    4. Jesse M. Keenan & Jacob T. Bradt, 2020. "Underwaterwriting: from theory to empiricism in regional mortgage markets in the U.S," Climatic Change, Springer, vol. 162(4), pages 2043-2067, October.
    5. Jaren C. Pope, 2008. "Do Seller Disclosures Affect Property Values? Buyer Information and the Hedonic Model," Land Economics, University of Wisconsin Press, vol. 84(4), pages 551-572.
    6. Carbo-Valverde, Santiago & Degryse, Hans & Rodríguez-Fernández, Francisco, 2015. "The impact of securitization on credit rationing: Empirical evidence," Journal of Financial Stability, Elsevier, vol. 20(C), pages 36-50.
    7. Ralf R. Meisenzahl, 2023. "How Climate Change Shapes Bank Lending: Evidence from Portfolio Reallocation," Working Paper Series WP 2023-12, Federal Reserve Bank of Chicago.
    8. Carolyn Kousky, 2010. "Learning from Extreme Events: Risk Perceptions after the Flood," Land Economics, University of Wisconsin Press, vol. 86(3).
    9. Matthew Gibson & Jamie T. Mullins, 2020. "Climate Risk and Beliefs in New York Floodplains," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(6), pages 1069-1111.
    10. Ivan T. Ivanov & Marco Macchiavelli & João A. C. Santos, 2022. "Bank lending networks and the propagation of natural disasters," Financial Management, Financial Management Association International, vol. 51(3), pages 903-927, September.
    11. Garbarino, Nicola & Guin, Benjamin, 2021. "High water, no marks? Biased lending after extreme weather," Journal of Financial Stability, Elsevier, vol. 54(C).
    12. Cebenoyan, A. Sinan & Strahan, Philip E., 2004. "Risk management, capital structure and lending at banks," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 19-43, January.
    13. Yau-Huo (Jimmy) Shr & Katherine Y. Zipp, 2019. "The Aftermath of Flood Zone Remapping: The Asymmetric Impact of Flood Maps on Housing Prices," Land Economics, University of Wisconsin Press, vol. 95(2), pages 174-192.
    14. Jesse D. Gourevitch & Carolyn Kousky & Yanjun (Penny) Liao & Christoph Nolte & Adam B. Pollack & Jeremy R. Porter & Joakim A. Weill, 2023. "Unpriced climate risk and the potential consequences of overvaluation in US housing markets," Nature Climate Change, Nature, vol. 13(3), pages 250-257, March.
    15. Benjamin J. Keys & Philip Mulder, 2020. "Neglected No More: Housing Markets, Mortgage Lending, and Sea Level Rise," NBER Working Papers 27930, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Justin Contat & Caroline Hopkins & Luis Mejia & Matthew Suandi, 2023. "When Climate Meets Real Estate: A Survey of the Literature," FHFA Staff Working Papers 23-05, Federal Housing Finance Agency.
    2. Liao, Yanjun (Penny) & Mulder, Philip, 2021. "What's at Stake? Understanding the Role of Home Equity in Flood Insurance Demand," RFF Working Paper Series 21-25, Resources for the Future.
    3. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    4. Kristian S. Blickle & João A. C. Santos, 2022. "Unintended Consequences of "Mandatory" Flood Insurance," Staff Reports 1012, Federal Reserve Bank of New York.
    5. Ruchi Avtar & Kristian S. Blickle & Rajashri Chakrabarti & Janavi Janakiraman & Maxim L. Pinkovskiy, 2023. "Understanding the Linkages between Climate Change and Inequality in the United States," Economic Policy Review, Federal Reserve Bank of New York, vol. 29(1), pages 1-39, June.
    6. Kendra Marcoux & Katherine R. H. Wagner, 2023. "Fifty Years of U.S. Natural Disaster Insurance Policy," CESifo Working Paper Series 10431, CESifo.
    7. Joakim Weill, 2023. "Flood Risk Mapping and the Distributional Impacts of Climate Information," Working Papers 2023.10, FAERE - French Association of Environmental and Resource Economists.
    8. Hennighausen, Hannah & Liao, Yanjun & Nolte, Christoph & Pollack, Adam, 2023. "Flood insurance reforms, housing market dynamics, and adaptation to climate risks," Journal of Housing Economics, Elsevier, vol. 62(C).
    9. Joakim A. Weill, 2023. "Flood Risk Mapping and the Distributional Impacts of Climate Information," Finance and Economics Discussion Series 2023-066, Board of Governors of the Federal Reserve System (U.S.).
    10. Guo, Wei & Liao, Yanjun (Penny) & Miao, Qing, 2023. "Managed Retreat and Flood Recovery: The Local Economic Impacts of a Buyout and Acquisition Program," RFF Working Paper Series 23-44, Resources for the Future.
    11. Shala, Iliriana & Schumacher, Benno, 2022. "The impact of natural disasters on banks' impairment flow: Evidence from Germany," Discussion Papers 36/2022, Deutsche Bundesbank.
    12. Michael C. S. Wong & Ho Ming Ho, 2023. "A Framework for Integrating Extreme Weather Risk, Probability of Default, and Loss Given Default for Residential Mortgage Loans," Sustainability, MDPI, vol. 15(15), pages 1, August.
    13. Eszter Baranyai & Ádám Banai, 2022. "Heat projections and mortgage characteristics: evidence from the USA," Climatic Change, Springer, vol. 175(3), pages 1-20, December.
    14. Xu, Minhong & Xu, Yilan, 2023. "Do non-damaging earthquakes shake mortgage lenders' risk perception?," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    15. Miyuki Hino & Marshall Burke, 2020. "Does Information About Climate Risk Affect Property Values?," NBER Working Papers 26807, National Bureau of Economic Research, Inc.
    16. Braun, Alexander & Braun, Julia & Weigert, Florian, 2023. "Extreme weather risk and the cost of equity," CFR Working Papers 23-08, University of Cologne, Centre for Financial Research (CFR).
    17. Robert Forster & Destan Kirimhan & Xiaojin Sun, 2022. "Deepwater Horizon and Mortgage Lending," Working Papers 202219, University of Liverpool, Department of Economics.
    18. Jesse D. Gourevitch & Carolyn Kousky & Yanjun (Penny) Liao & Christoph Nolte & Adam B. Pollack & Jeremy R. Porter & Joakim A. Weill, 2023. "Unpriced climate risk and the potential consequences of overvaluation in US housing markets," Nature Climate Change, Nature, vol. 13(3), pages 250-257, March.
    19. Guilfoos, Todd & Walsh, Jason, 2023. "A hedonic study of New England dam removals," Ecological Economics, Elsevier, vol. 203(C).
    20. Mercy Berman DeMenno, 2023. "Environmental sustainability and financial stability: can macroprudential stress testing measure and mitigate climate-related systemic financial risk?," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(4), pages 445-473, December.

    More about this item

    Keywords

    flood risk; flood maps; bank lending; climate change; natural disasters; Home Mortgage Disclosure Act (HMDA) data; FEMA; credit constraints;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:98187. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.