“It could come close to exposing lenders to uncontrollable risk.” That was the warning from Five Star Institute President & CEO, Ed Delgado, when discussing the threat that natural disasters pose to the mortgage industry and homeowners.
Speaking with CNBC’s Diana Olick on the effect that the increasing frequency of extreme weather events are having on the housing market, Delgado called for lenders to reevaluate the strategy for pricing the threat of disaster into their credit modeling. "If we look at the basic foundation of what drives the mortgage market, it is the application of credit risk. What's missing is the understanding of weather risk and where those weather events can take place."
The effect felt by homeowners in the wake of Hurricane Harvey is instructive. According to a recent report by CoreLogic, in Harvey's federally declared disaster areas, 80 percent of the homes lacked flood insurance. The report also revealed a jump in serious mortgage delinquencies on damaged homes within the area to more than 200 percent. As serious disasters continue to occur in areas once considered unthreatened by the phenomenon, the potential of a foreclosure crisis in unprepared, unsuspecting areas looms large over the nation’s mortgage industry.
In the interview, Delgado said that he did not believe that mortgage market was prepared for the risk of increasingly severe weather and called on the industry to be more proactive in its approach in dealing with this new reality.
“When you have more than a trillion dollars worth of real estate at risk in coastal markets, it’s about time you start paying attention to that.”
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