In an April "Insight" report by Freddie Mac, the government-sponsored home loan agency, its chief economist warned of sea levels and flooding reaching a point where properties becomes uninsurable and unmarketable, causing homeowners to begin defaulting on their mortgages. This would instigate another housing crisis—except this time, it'd be unlikely that housing prices ever recover.
Sean Becketti, Chief Economist, Freddie Mac said in a statement:
“In the housing crisis, a significant share of borrowers continued to make their mortgage payments even though the values of their homes were less than the balances of their mortgages. It is less likely that borrowers will continue to make mortgage payments if their homes are literally underwater. As a result, lenders, servicers and mortgage insurers are likely to suffer large losses…
Will the value of the house decline gradually as the expected life of the house becomes shorter? Or, alternatively, will the value of the house—and all the houses around it—plunge the first time a lender refuses to make a mortgage on a nearby house or an insurer refuses to issue a homeowner's policy? Or will the trigger be one or two homeowners who decide to sell defensively? As the market shakes out in the affected areas, some residents will cash out early and suffer minimal losses. Others will not be so lucky. And newcomers may appear, finally able to live out their dreams of living at the seashore, if only for a short time.”
Becketti was not available for comment this week, but Albert Slap, the co-founder of Plantation-based sea level rise adaptation firm Coastal Risk Consulting, noted a concern that banks require some homes to have flood insurance in order to qualify for mortgages, but risk to sea level rise is currently not evaluated.
“Until now, banks have ignored climate change completely and issue mortgages anywhere,” he says. “With sea level rise and climate impact, people’s mortgages will not just be figuratively underwater, but literally."
Slap is an environmental lawyer who made a small fortune during his 40-year career defending high profile cases (like the Environmental Protection Agency against Miami-Dade County). Coastal Risk Consulting launched in 2014, working mostly on consulting projects and advising communities how to build in preparation for sea level rise. Last December, it released a new feature that allows any person to look up any address in Miami-Dade, Broward, Palm Beach, and Monroe counties and determine its risk of flooding from sea-level rise over the next 30 years (the length of a standard mortgage). Now, Coastal Risk Consulting works with everyday homeowners, small engineering firms, and multimillion-dollar companies like Atlantic Broadband on how to make properties and businesses sea level rise ready.
“We’ve been trying to tell the banks that you have to be forward-looking when giving out a loan and determining whether it should be 15 years or 30 years,” Slap says. “You saw the same thing in 2008: big banks giving loans to people who shouldn’t have been given loans.”
When taking a loan, banks use a FICO Credit Score to determine consumer credit risk, or how likely it is that a buyer will pay back loaned money. Slap says in light of the rising seas and flooding, however, banks should also calculate a flood risk score to determine a property's "life expectancy."
“Climate change is impacting the mortgage market,” Slap says. “These risks are real, and each year it’s getting worse and worse. To say it’s not happening right now is just not right.”
Preparing for sea level rise is expensive. One Las Olas Isles property owner spent $1 million raising the land he purchased to make it more sea level rise ready. But Slap is concerned that other homeowners expect the government (either federal or local) to bail them out. "The government didn’t cause global warming and sea level rise and won’t bail us out 100 percent,” Slap explains. “There are cost-effective measures that people can take to be more resilient and not just sit back and expect Mayor Levine and his pumps to save you.”