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California Wildfires, Property Damage, and Mortgage Repayment

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  • Siddhartha Biswas
  • Mallick Hossain
  • David Zink

Abstract

This paper examines wildfires’ impact on mortgage repayment using novel data that combines property-level damages and mortgage performance data. We find that 90-day delinquencies were 4 percentage points higher and prepayments were 16 percentage points higher for properties that were damaged by wildfires compared to properties 1 to 2 miles outside of the wildfire, which suggests higher risks to mortgage markets than found in previous studies. We find no significant changes in delinquency or prepayment for undamaged properties inside a wildfire boundary. Prepayments are not driven by increased sales or refinances, suggesting insurance claims drive prepayment. We provide evidence that underinsurance may force borrowers to prepay instead of rebuild.

Suggested Citation

  • Siddhartha Biswas & Mallick Hossain & David Zink, 2023. "California Wildfires, Property Damage, and Mortgage Repayment," Working Papers 23-05, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:95860
    DOI: 10.21799/frbp.wp.2023.05
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    Cited by:

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    2. Dasol Kim & Luke Olson & Toan Phan, 2024. "Bank Competition and Strategic Adaptation to Climate Change," Working Paper 24-06, Federal Reserve Bank of Richmond.

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    More about this item

    Keywords

    wildfires; mortgage; prepayment risk; climate risk; physical risk; underinsurance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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