Rising Waters, Rising Costs

The Congressional Budget Office (CBO) has issued a report, “Flood Damage and Federally Backed Mortgages in a Changing Climate,” examining how much flood damage homes with federally backed mortgages are expected to face in two multiyear projection periods, one centered on 2020, and the other centered on 2050.

And as the climate continues to change, flood damage to homes in the U.S. is expected to increase, with many of those homes having mortgages that are guaranteed by a government-sponsored enterprise (GSE) or backed by the U.S. Department of Veterans Affairs or the Federal Housing Administration (FHA).

Key conclusions found by CBO in the report include:

  • Expected Annual Damage (EAD): In the 2020 projection period (which generally captures current climate conditions), homes with federally backed mortgages face an expected annual damage of $9.4 billion, CBO estimates. That amount would rise by about one-third to $12.8 billion (in 2020 dollars) in the 2050 projection period if all factors other than the climate remained unchanged. Under a lower climate change projection, EAD in the 2050 period is $10.2 billion; under a higher one, EAD is $16.1 billion.
  • Total Expected Damage Over a 30-Year Period: To illustrate how expected flood damage over many years of ownership would compare with the property value, CBO calculated the present value of experiencing expected annual damage each year for 30 years. The total expected damage over a 30-year period to homes with federally backed mortgages rises from $190 billion (in present-value terms) in the 2020 period to $258 billion in the 2050 period.
  • Flood Damage and Property Values: Properties accounting for about 7% of the total value of properties with federally backed mortgages face a risk of flood damage each year in the 2020 period. Among those homes, the total expected damage over 30 years is about 14% of the total property value. Among all homes with federally backed mortgages, that share is 1%.
  • Location of Flood Damage: In both periods, about 40% to 50% of flood damage occurs outside of areas designated as special flood hazard areas by the Federal Emergency Management Agency (FEMA), CBO estimates. More than half of all expected damage to homes with federally backed mortgages is in coastal areas. The top 10 counties in terms of EAD account for more than one-quarter of EAD nationwide.

“I’ve long sounded the alarm on the effects of climate change, and the Congressional Budget Office’s (CBO) new report is a stark reminder that worsening climate change remains one of the greatest threats to our nation’s housing and financial systems,” said Rep. Maxine Waters, the top Democrat on the House Financial Services Committee. “In particular, the CBO finds that between 2020 and 2050, the federal government will continue to experience increased flood-related damages to homes financed with federally backed and insured mortgages. Total expected flood damages are projected to reach up to $258 billion over a 30-year period by 2050 for homes with mortgages that are backed, insured, or guaranteed by Fannie Mae and Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs. The CBO also adds to a body of evidence that shows the Federal Emergency Management Agency’s (FEMA) mapping of special flood hazard areas (SFHAs) does not account for up to half of all homeowners with federal mortgages who are at risk of flood damage, with most expected damages concentrated in coastal areas. This is why I have continually pushed for increased funding and reforms to modernize the National Flood Insurance Program (NFIP) and FEMA’s mapping of SFHAs.”

According to the CBO, expected flood damage is small relative to total property value, but the potential exposure of mortgages to flood risk varies significantly within the country. Expected damage is concentrated in certain geographic areas, such as the Atlantic and Gulf Coasts, where it may be large relative to property values. Almost half of expected damage to homes with federally backed mortgages is located in areas where homeowners are not required to carry flood insurance. Moreover, fees for mortgage guarantees do not vary by the amount of flood risk.

As a result of climate change’s effects on sea levels, storms, and precipitation patterns, the risk of flood damage—that is, the monetary damage to structures caused by flooding—is expected to increase in the United States. In this report, the CBO examines the extent of flood damage to single-family homes—typically, detached properties with one to four residential dwelling units, excluding condominium units in multifamily structures—under projected flood risk in two different periods.

With a government shutdown looming, a coalition of housing organizations have sent a letter to Speaker of the United States House of Representatives Rep. Mike Johnson, Rep. Chuck Schumer, Rep. Hakeem Jeffries, and Rep. Mitch McConnell urging Congress to redouble their efforts and support the ability to pursue the American Dream of property ownership and access to quality rental housing by extending the authority of the National Flood Insurance Program (NFIP) and ensuring other vital housing programs do not lapse on November 17.

An impending government shutdown on November 17 would disrupt the purchase and renewal of flood insurance in more than 20,000 communities across the country. The National Association of Realtors (NAR) estimates an extended lapse of the NFIP’s authority could threaten 1,300 property sales each day, as buyers lose financing or are forced to pay fees to hold interest rates.

Managed by FEMA, the NFIP is delivered to the public by a network of more than 50 insurance companies and NFIP Direct.

“The bottom line is that families across the country who are affected by increased flood disaster cannot afford to pay the price of the current instability of the NFIP,” added Rep. Waters. “While the House passed its 27th bipartisan short-term reauthorization of this NFIP through February 2, 2024, this is part of a pattern that has put the NFIP repeatedly at risk of lapse throughout the years—something that industry and advocates alike have strongly opposed. I call on my Republican colleagues to work alongside Democrats in the House to pass legislation that would finally bring stability to the NFIP through long-term reauthorization and reform. During my time as Chairwoman of the Committee, we were successful in passing my bipartisan bill, the ‘National Flood Insurance Program Reauthorization Act of 2019’ that did just that and I am confident we can do it again. Now is the time.”

In early October, as the NFIP was just hours away from its termination deadline, House and Senate lawmakers have approved a bipartisan measure—H.R. 5860, the Continuing Appropriations Act, 2024 and Other Extensions Act—to continue to fund the NFIP for an additional 45 days through mid-November. The NFIP’s last multi-year reauthorization expired on September 30, 2017, and since then, the NFIP has been extended 22 times (23 times as of today) and was allowed to briefly lapse on three occasions.

Click here to view the full CBO report, “Flood Damage and Federally Backed Mortgages in a Changing Climate.”

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