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When the Mortgage Becomes the Backup Plan: Debt and Disaster Insurance

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  • Toan Phan

Abstract

Debt crowds out flood insurance, as homeowners with little equity have less to lose from default, making their mortgage an implicit backup plan that substitutes for formal coverage. Uninsured exposure is highest in the riskiest areas, precisely where flood damage is most likely. After Hurricane Harvey, uninsured homeowners defaulted three times more often than the regular default rate.

Suggested Citation

  • Toan Phan, 2026. "When the Mortgage Becomes the Backup Plan: Debt and Disaster Insurance," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 26(22), July.
    • Handle: RePEc:fip:fedreb:103503
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    File URL: https://www.richmondfed.org/publications/research/economic_brief/2026/eb_26-22
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