SAN FRANCISCO–Climate change could bring an end to the traditional 30-year home mortgage, according to the latest research from the Federal Reserve Bank of San Francisco.
The research was shared during a conference on the economics of climate change.
Jesse Keenan, a scholar on climate adaptation, told CBS News the question is around whether “there will be a market at all.”
CBS News noted that right now there are 50,000 homeowners who can't get property or casualty insurance because of the increased risk to their homes.
Yet for now, no mortgage lender, portfolio manager or buyer of mortgages takes into account climate-induced floods, except to determine if a house sits in a 100-year floodplain at the time the mortgage is issued, said Michael Berman, a former official with the U.S. Department of Housing and Urban Development and former chairman of the Mortgage Bankers Association.
Pricing in Risk
Once lenders and housing investors do start pricing in risks related to climate change, Michael Berman a former official with HUD and chair of the Mortgage Bankers Association said, “There may be a threat to the availability of the 30-year mortgage in various vulnerable and highly exposed areas.”
Berman predicted lenders could "blue-line" entire regions where flood risks are high.
“The result: Entire neighborhoods would empty out, leaving cities unable to shore up their crumbling roads and bridges just as severe weather events become more extreme and more frequent,” CBS News said. “Home values would fall, potentially depleting the budgets of counties and states.”
‘Cascade of Negative Events’
The analysis added that if lenders don't recognize the danger of flood risk and keep lending only to have flooded homeowners default on their mortgages, the events could lead to a cascade of negative events akin to the housing collapse in 2008, which set off the worst recession in 70 years.
"Nobody denies that [climate change] is happening, that it's real, that it is going to have a material effect. But by and large, there is such an inertia in our financial system that this isn't even on the radar of people," said Rachel Cleetus, policy director for the climate and energy program at the Union of Concerned Scientists (UCS), according to CBS News. "The market is short-sighted. You have a three- to five-year horizon."