The mortgage industry isn't ready for a foreclosure crisis created by climate change - Recent News from USA
The mortgage industry isn't ready for a foreclosure crisis created by climate change

The mortgage industry isn't ready for a foreclosure crisis created by climate change

Houston could have seen a massive foreclosure crisis were it not for strong investor demand in the market. Houston’s economy was strong before the storm, and its housing stock was lean. After the storm, investors swarmed the market, offering troubled homeowners an easy way out, largely in cash.

Investor purchases of 10 or more properties jumped nearly 50 percent in the year following Harvey, according to Attom Data Solutions. Some were large-scale buyers, like Cerberus Capital and HomeVestors of America.

Others were smaller home flippers, like JP Patel, who was still buying properties at a crowded auction event in Houston last October. His company, Texas-based Myers, has purchased 80 Harvey-damaged properties.

“As an investor, it was kind of a perfect opportunity,” said Patel. “We literally can avoid the whole problematic nature of the foreclosure process.”

Houston dodged a crisis because it was already a hot housing market, and people still wanted to live there after the storm. But Houston should be a wake-up call to the rest of the nation, according to Delgado, specifically because the damaged homes were largely not in FEMA flood plains, and were therefore not required to have flood insurance.

“You have this tremendous urbanization, population growth. Roads that are being built in the last 10 years. Where does the water go?” Delgado asked. “And is there an underlying risk for us to examine with respect to our portfolio? And then make decisions. Should we be lending in those markets?”

Lenders today, and the federal government that backs most loans, base their risk on FEMA’s flood maps, but even top FEMA officials admit the maps don’t account for increasingly extreme weather.

“We can’t try to determine what’s going to happen in 12 months beyond, because insurance is set up for what your risk is today. And it wouldn’t meet actuarial science to charge you for a future potential,” said David Maurstad, FEMA’s deputy associate administrator for Insurance and Mitigation.

FEMA is required to update its maps every five years. Maurstad says it relies heavily on local communities reporting problems — but some don’t because they don’t want their insurance premiums to go up.

“We know that only one-third of the properties in the high-risk area have flood insurance, so we have a lot of work to do,” he said.

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