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Do mortgage lenders offload climate-exposed loans to government-sponsored enterprises?

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  • Baranyai, Eszter

Abstract

We investigate whether US residential mortgage lenders respond to climate change projections by offloading climate-exposed loans to government-sponsored enterprises (GSEs) which largely overlook global warming risks in their framework. Using difference-in-differences estimators we find that both banks and independent mortgage companies sold a higher proportion of loans to GSEs in areas most exposed to climate risks – based on our climate change indicator encompassing risks of extreme heat, drought and flood. This trend has been evident since 2013 but intensified after 2016, when granular climate projections became publicly available. In highly exposed areas only, GSE securitisation rates are inversely related to flood insurance coverage, suggesting one may act as a substitute for the other. While increased awareness of climate risks is a favourable development, the potential transfer of risk to the public sector and possible cross-subsidisation – where lower-risk areas bear costs for higher-risk regions – warrant policy attention.

Suggested Citation

  • Baranyai, Eszter, 2025. "Do mortgage lenders offload climate-exposed loans to government-sponsored enterprises?," Finance Research Letters, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finlet:v:84:y:2025:i:c:s1544612325010074
    DOI: 10.1016/j.frl.2025.107749
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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

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