The Federal Housing Finance Agency earlier this month put out a request for input on the impact of natural disaster risk to the housing finance system as a whole and to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks in particular.
In its RFI, the agency noted that “natural disasters could result in increased delinquency rates, default rates, credit losses, credit-related expenses, and loan loss frequency and severity.”
The RFI focuses on two specific considerations.
- Setting A Standard In identifying and Assessing Climate and Natural Disaster Risk
FHFA seeks a standard in identifying and assessing climate and natural disaster risk, including setting the methodologies in measuring and monitoring these risks while establishing risk management strategies and approaches related to pricing, insurance, credit risk transfers, loss mitigation, and disaster response.
- The Supervisory and Regulatory Framework in Assessing and Managing Climate and Natural Disaster Risk
The second consideration examines the FHFA’s supervisory and regulatory framework in assessing and managing these risks, with concerns ranging from how the agency supervises the climate and natural disaster risk management within its regulated entities and prioritizing the risks that require regulatory oversight.
The time is right for the FHFA to create industry-wide standards that contemplate and quantify climate risks in decision making and valuations.
A growing body of research studies the risks that climate change and natural disasters pose to the stability of the economy, the financial system, the national housing finance markets, and FHFA’s regulated entities. Some of this research has examined how climate risks affect valuations. Other study areas include the current and future efficacy and availability of traditional climate risk mitigants, such as the National Flood Insurance Program and hazard insurance policies.
When Mother Nature strikes, no one can prevent her from decimating anything from her path. One has to look back no further than 2020 to find evidence of how much climate change impacts real estate. Insurance firm Aon estimates that at least 25 separate billion-dollar weather disasters unfolded across the United States last year, creating an economic toll that will exceed $100 billion.
Understanding and mitigating climate risk is a complex and evolving challenge for real estate investors. Insurance has historically been the primary tool for mitigating the risks posed by extreme weather events. Still, premiums are typically based on retroactive data and with the heightened prevalence of flooding in coastal areas, a substantial number of properties could likely become uninsurable. FEMA also offers aid, but not everyone can qualify.
To that end obtaining post-disaster insight is a valuable tool that can help investors better manage the impact a disaster has had on their property portfolio.
However, obtaining an accurate valuation of a home in a disaster area is not simple. Veros Disaster Data solution reports disaster impact at the parcel level, quickly leveraging geospatial data to map a core disaster polygon and surrounding buffer zone. It then locates the impacted properties within the polygon by lot boundary, zip code, and by physical address. So, you’ll know exactly which properties are likely impacted. And armed with this information, you will have the insight you need to:
- Identify potentially damaged and high-risk properties
- Prioritize property inspections based on their location to the core and buffer zone of the disaster
- Accelerate clear-to-close time for unimpacted properties in the flagged disaster area counties
- Base risk-based decisions on the most current disaster status information
- Enhance borrower/homeowner relations by proactively identifying at-risk loans and rapidly initiating contact
- Maintain compliance with GSE disaster policy regulation
Whether you are a GSE, lender or servicer, having the parcel level insight post-disaster, will also enable you to protect homeowners in the future.