Extreme Weather: Housing, Transport, and Finance
Paper Session
Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Amine Ouazad, Rutgers University
Natural Disasters and Mortgage Risk in the Federal Housing Administration
Abstract
Climate change poses significant risk to the US housing and mortgage finance ecosystem, with many effects shown or predicted to disproportionately affect economically vulnerable populations. Households exposed to natural disasters face risks of damaged homes, loss of residence and income disruptions, among others. For mortgage borrowers, disaster related financial shocks could lead to significant financial distress resulting in mortgage default. Focusing on the Federal Housing Administration’s (FHA) single family mortgage insurance (MI) program, this study characterizes past disaster exposure on a sample of 897,00 FHA insured mortgages from 2004-2017 and estimates a relationship between past exposure and homebuyer outcomes. Additionally, this study estimates risks to the FHA Mutual Mortgage Insurance Fund (MMI Fund) through a two-stage process. Despite FHA safeguards against disaster-related costs, such as requirements for hazard insurance and “preservation and protection” requirements, results indicate a positive correlation between exposure and adverse borrower outcomes. Using a standard claims-probability logit model with zip-code level disaster exposure data from FEMA and an 18-year loan level panel of FHA borrower and mortgage characteristics, we find disaster exposure correlates with a 20% increase in the probability of mortgage foreclosure with an MI claim. These effects are heterogeneous across race, disaster type and credit groups, providing evidence that economically vulnerable groups are more susceptible to adverse outcomes within the FHA portfolio. A second stage simulation using estimated coefficients from the claims probit model finds that disaster exposure caused between $0.8 billion and $1.5 billion in additional MI claims from 2004 to 2019. The role of hazard insurance and disaster aid are also examined.The Effects of Floodplain Buyouts on Local Housing Market: Evidence from Harris County, Texas
Abstract
Concerns over climate change and increased climatic disasters (e.g., hurricanes and flooding) have prompted growing interests in long-term adaptation involving permanent changes in land use and the built environment. Managed retreat has been recognized as an essential strategy for reducing flood risks in low-lying coastal areas where structural protection alone is insufficient to address repetitive flooding losses. Retreat is often supported through government buyouts of disasterdamaged properties, which are later demolished with the land being converted into open space. Buyouts are expected to deliver considerable social benefits by reducing future disaster losses (e.g., through reducing exposure of population and assets in high-risk areas) and improving environmental amenities (e.g., open space, increased recreational opportunities) and other ecosystem services. However, little research has empirically examined the effect of government buyouts and subsequent migration on the local communities, in particular their social welfare and well-being. This paper presents one of the first few studies of government buyouts of floodplain properties on local housing markets, in order to advance our understanding and assessment of the economic value of buyouts as land-based adaptation policy. Specifically, we focus on government buyouts implemented through the FEMA’s Hazard Mitigation Grants Program (the nation’s primary program funding post-disaster buyouts) in Harris County, Texas. The city of Houston is the largest city in the county and has the most property acquisitions in the nation, and meanwhile is the one of most flood-impacted areas. Rapid population growth increases local exposure to flood hazards, thereby making land use and development decisions highly important in local hazard mitigation. Our empirical analysis focuses on the property buyouts implemented after 2017 Hurricane Harvey, and uses the housing transaction data between 2010 and 2022. We combine a difference-in-difference approach with a hedonic model which controls for various housing structural, neighborhood, locational, and hazard risk characteristics alongExtreme Weather and Low-Income Household Finance: Evidence from Payday Loans
Abstract
This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Using a novel dataset comprising individual-level payday loan applications and loan-level information, we find that both extreme heat and cold days lead to surges in payday loan demand. Extra extreme heat days result in an increase in delinquency and default rates and a reduction of total credit issued, indicating a contraction in loan supply. The effects are especially noticeable for online payday loans. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies.Discussant(s)
Eric Zou
,
University of Oregon
William Boyd McClain
,
Fannie Mae
Amine Ouazad
,
Rutgers University
JEL Classifications
- Q5 - Environmental Economics
- G2 - Financial Institutions and Services