US Real Estate Mortgage Market Already Defending Itself Against Sea Level Rise

While many coastal communities struggle to control sea level rise flooding, US real estate mortgage providers are already taking steps to protect their businesses against the risk of inundation.

According to a New York Times article titled “Rising Seas Threaten an American Institution: The 30-year Mortgage”, banks in coastal areas are requiring buyers to make higher down payments as a hedge against the risk that sea level rise flooding and the loss of property value will encourage buyers to default on loans. In some cases, banks are requiring buyers to pay up to 40% up-front compared with the traditional 20% down payment.

The banks are also increasingly selling the mortgages to government-backed buyers to get the risk off their books. Interestingly enough, the article notes that small, local banks that know where flooding is now occurring or likely to occur soon are selling off loans the fastest. Unfortunately, if any of the sold loans fail, taxpayers will have to cover the loss.

Experts quoted in the article worry that sea level rise is making it difficult for buyers to get mortgages in coastal areas at risk of sea level rise flooding and storm surges from storms that grow more powerful as the planet heats up, which could cause values to drop. A representative for the Mortgage Bankers Association said flood insurance is protecting property in at-risk areas which should help prevent a mortgage meltdown. (Apparently, he isn’t aware that FEMA’s flood insurance maps are horribly outdated and don’t consider sea level rise flooding.) The fact that properties have to be insured against flood loss, however, hasn’t completely alleviated the experts’ concern. One researcher told the New York Times that flood insurance won’t help in cases where flooding causes a property to lose all value and can’t be sold.

Activity in the financial sector, including mortgage providers and insurers, is usually forward looking . Their growing concern over the impact sea level rise flooding will have on the mortgage, insurance and, ultimately, coastal real estate markets should act as a wake-up call that spurs buyers, owners and real estate agents to start paying close attention to this growing risk.