Rising Seas Threaten an American Institution: The 30-Year Mortgage - The New York Times - 0 views
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Home buyers are increasingly using mortgages that make it easier for them to stop making their monthly payments and walk away from the loan if the home floods or becomes unsellable or unlivable.
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More banks are getting buyers in coastal areas to make bigger down payments — often as much as 40 percent of the purchase price, up from the traditional 20 percent — a sign that lenders have awakened to climate dangers and want to put less of their own money at risk.
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And in one of the clearest signs that banks are worried about global warming, they are increasingly getting these mortgages off their own books by selling them to government-backed buyers like Fannie Mae, where taxpayers would be on the hook financially if any of the loans fail.
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“Conventional mortgages have survived many financial crises, but they may not survive the climate crisis,” said Jesse Keenan, an associate professor at Tulane University. “This trend also reflects a systematic financial risk for banks and the U.S. taxpayers who ultimately foot the bill.”
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The question that matters, according to researchers, isn’t whether the effects of climate change will start to ripple through the housing market. Rather, it’s how fast those effects will occur and what they will look like.
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It’s not only along the nation’s rivers and coasts where climate-induced risk has started to push down home prices. In parts of the West, the growing danger of wildfires is already making it harder for homeowners to get insurance.
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as the world warms, that long-term nature of conventional mortgages might not be as desirable as it once was, as rising seas and worsening storms threaten to make some land uninhabitable. A retreat from the 30-year mortgage could also put homeownership out of reach for more Americans.
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It could also be one of the most economically significant. During the 2008 financial crisis, a decline in home values helped cripple the financial system and pushed almost 9 million Americans out of work.
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In 2016, Freddie Mac’s chief economist at the time, Sean Becketti, warned that losses from flooding both inland and along the coasts are “likely to be greater in total than those experienced in the housing crisis and the Great Recession.”
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If climate change makes coastal homes uninsurable, Dr. Becketti wrote, their value could fall to nothing, and unlike the 2008 financial crisis, “homeowners will have no expectation that the values of their homes will ever recover.”
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In 30 years from now, if global-warming emissions follow their current trajectory, almost half a million existing homes will be on land that floods at least once a year,
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new research shows banks rapidly shifting mortgages with flood risk off their books and over to organizations like Fannie Mae and Freddie Mac, government-sponsored entities whose debts are backed by taxpayers
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the lenders selling off coastal mortgages the fastest are smaller local banks, which are more likely than large national banks to know which neighborhoods face the greatest climate risk.
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In 2009, local banks sold off 43 percent of their mortgages in vulnerable zones, Dr. Keenan and Mr. Bradt found, about the same share as other areas. But by 2017, the share had jumped by one-third, to 57 percent, despite staying flat in less vulnerable neighborhoods.
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Dr. Keenan found banks protecting themselves in other ways, such as lending less money to home buyers in vulnerable areas, relative to the value of the homes.
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a growing share of mortgages had required down payments between 21 percent and 40 percent — what Dr. Keenan called nonconventional loans.
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flood insurance isn’t likely to address the problem, Dr. Keenan said, because it doesn’t protect against the risk of a house losing value and ultimately becoming unsellable.
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More homeowners are also taking out a type of mortgage that is less financially painful for a borrower to walk away from if a home becomes uninhabitable because of rising seas. These are known as interest-only mortgages — the monthly payment covers only the interest on the loan, and doesn’t reduce the principal owed.
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It’s a loan you can never pay off with the regular monthly payments. However, it also means buyers aren’t sinking any more of their own money into the property beyond a down payment. That’s an advantage if you think the property may become unlivable.
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he share of homes with fixed-rate, 30-year mortgages has declined sharply — to less than 80 percent, as of 2016 — in areas most exposed to storm surge
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More than 10 percent of homeowners in those areas had interest-only loans in 2016, compared with just 2.3 percent in other ZIP Codes.