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Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters

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  • Amine Ouazad
  • Matthew E. Kahn

Abstract

Using the government-sponsored enterprises’ sharp securitization rules, this paper provides evidence that, in the aftermath of natural disasters, lenders are more likely to approve mortgages that can be securitized; thereby transferring climate risk when learning the ’new news’ of default. The identification strategy uses the GSEs’ time-varying conforming loan limits at which mortgages bunch. Natural disasters increase bunching, suggesting an increased option value of securitization. The increase is lower where flood insurance is required. A model identified using indirect inference simulates increasing disaster risk without GSEs. Mortgage credit supply would decline in flood zones. Endogenous guarantee fees are estimated.

Suggested Citation

  • Amine Ouazad & Matthew E. Kahn, 2019. "Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters," NBER Working Papers 26322, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26322
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. An October Update on the 21st Century Cities Initiative at Johns Hopkins
      by Matthew E. Kahn in Environmental and Urban Economics on 2019-10-06 14:16:00
    2. In the Year 2030, How Will Applied Microeconomists Study the Consequences of the 2020 COVID Shock?
      by Matthew E. Kahn in Environmental and Urban Economics on 2020-12-24 15:02:00

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    Cited by:

    1. Mete Feridun & Hasan Güngör, 2020. "Climate-Related Prudential Risks in the Banking Sector: A Review of the Emerging Regulatory and Supervisory Practices," Sustainability, MDPI, Open Access Journal, vol. 12(13), pages 1-1, July.
    2. Joshua S. Graff Zivin & Yanjun Liao & Yann Panassie, 2020. "How Hurricanes Sweep Up Housing Markets: Evidence from Florida," NBER Working Papers 27542, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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