First Street, a climate risk financial modeling organization, has released of its latest publication: The 13th National Risk Assessment: Climate, the Sixth “C” of Credit. This report presents an analysis of the growing influence of climate-related hazards—specifically flooding, wildfire, and hurricane winds—on mortgage market performance. The findings project that in severe weather years, events could lead to an estimated $1.2 billion in mortgage-related credit losses today, rising to $5.4 billion annually by 2035.
The 13th National Risk Assessment: Climate, the Sixth “C” of Credit introduces climate risk as a sixth core component of creditworthiness, complementing the traditional Five C’s of Credit: Character, Capacity, Capital, Conditions, and Collateral.
“Mortgage markets are now on the front lines of climate risk,” said Dr. Jeremy Porter, Head of Climate Implications at First Street. “Our modeling demonstrates that physical hazards are already eroding foundational assumptions of loan underwriting, property valuation, and credit servicing—introducing systemic financial risk.”
Key Findings of the Report
First Street has projected that the combined effects of direct disaster impacts and indirect economic pressures could result in up to $1.2 billion in credit losses from severe weather events by 2025, rising to $5.4 billion by 2035. This growing share of foreclosure losses is driven by the escalating insurance crisis and the increasing frequency and severity of flooding anticipated in the coming decade. Additional findings include:
- Flooding is the leading climate driver of foreclosure risk, with inland and riverine flooding posing significant threat in areas with low insurance uptake.
- Gaps in flood insurance coverage leave many properties exposed, as standard homeowners insurance excludes flood damage, unlike wind and wildfire losses.
- Compounding financial stressors—including rising insurance premiums, property value depreciation, and broader economic strain—further amplify the risk of borrower default.
- Florida, Louisiana, and California are projected to account for 53% of all climate-related mortgage losses in 2025.
The research highlights the need for financial institutions and regulators to adopt climate-adjusted credit models and enhance risk management frameworks considering evolving environmental exposures. With secondary mortgage markets—such as residential mortgage-backed securities (RMBS)—increasingly vulnerable, the financial implications are both immediate and far-reaching.
“It’s no longer sufficient to evaluate a borrower’s credit score alone,” said Matthew Eby, Founder and CEO of First Street. “Climate risk associated with the property itself has become a core determinant of creditworthiness. This marks a structural shift in financial risk assessment with major consequences for lenders, investors, and homeowners alike.”
Click here for more on First Street’s The 13th National Risk Assessment: Climate, the Sixth “C” of Credit report.
