Flood Risk and Community Resiliency

Flooding is the most frequent and costliest natural disaster in the United States. Scientists predict more serious flood losses in the future due to the combined forces of increasing development in areas subject to flooding and climate changes, including both changing storm and precipitation patterns and sea level rise. According to some estimates, coastal flooding may inundate two percent of the homes in the U.S. by 2100 due to sea level rise, with neighborhood effects, such as impassable roads, impacting far more residences. This will cause stress to housing markets in many locations over the coming decades.

Today, many homeowners are uninsured against flood damage. For example, approximately 20 percent of homes in areas affected by Hurricane Harvey had flood insurance and only 12 percent of homes in East Baton Rouge Parish, LA were protected with flood insurance in August 2016 when severe storms caused widespread flooding. Federally backed or regulated lenders require flood insurance on loans collateralized with property in the 100-year floodplain as mapped by the Federal Emergency Management Agency (FEMA). However, these insurance policies are often held for only a few years. Moreover, flood damage can occur in communities outside this region from more extreme events (e.g. Baton Rouge and Houston), unmapped stormwater flood risks, or because the maps are using outdated data or methods. The lack of widespread take-up of flood insurance will not only impose financial strain on families but could have spillover effects in adjoining communities and may trigger foreclosures that hurt lenders. Among those with insurance, properties that experience repetitive losses pose an additional problem. This paper describes the U.S. housing market’s exposure to flood risk and suggests directions for future research and action.

Read the full paper: “Flood Risk and the U.S. Housing Market

Mortgage Risk Premiums during the Housing Bubble

How did pricing for mortgage credit risk change during the years prior to the 2008 financial crisis? Using a database from a major American bank that served as trustee for private-label mortgage-backed securitized (PLS) loans, this paper identifies a decline in credit spreads on mortgages conditioned on loan and borrower characteristics. We show that observable risk factors, FICO score and loan-to-value ratios, have less of an impact on mortgage pricing over time. As the volume of PLS mortgages expanded and lending terms eased, risk premiums failed to price the increase in risk.

Read the full paper: “Mortgage Risk Premiums during the Housing Bubble

Endowments and Minority Homeownership

Fifty years after the adoption of the 1968 Fair Housing Act that prohibits discrimination in the housing market, homeownership rates have not increased for black or Hispanic households. The current homeownership rate for black households is 42 percent, identical to the 1970 census reported level, and 48 percent for Hispanic households, lower than 1970. Using data from the 1989, 2005 and 2013 American Housing Surveys, we identify the extent to which group differences in household endowments account for persistently low minority homeownership levels.

Read the full paper: “Endowments and Minority Homeownership