Federal Reserve Chairman Jerome Powell warned that it may become impossible to get a mortgage in some high-risk areas in 10-15 years. Is he right? Michel Martin asks University of Pennsylvania real estate professor Ben Keys.
MARTIN: So let me start with insurance in places like Los Angeles, which has just experienced these terrible wildfires, or coastal Florida. I think most people know that insurance premiums have skyrocketed in many places, especially places like that. Insurers are pulling out of some places that are considered at climate risk. Is this at a level that you would consider a crisis?
KEYS: It is a crisis for many homeowners. It’s difficult to find private insurers who are willing to write policies in many of these areas. My research has shown that premiums have risen by more than 50% in some of the highest-risk zip codes in the country since the start of COVID. So this is a real challenge for homeowners, and it’s becoming a difficulty when it comes to their pocketbooks.
MARTIN: So what does this have to do with our ability to get a mortgage?
KEYS: Yeah, well, in order to get a mortgage, you basically have to have an insurance policy attached to it. Most mortgages are sold by lenders and then securitized into a mortgage-backed security system. And for the mortgage to make its way through that chain, it effectively needs to be bubble wrapped with an insurance policy that’s going to protect the holders of that risk. And so you really can’t get a mortgage without insurance policy. And taking it one step further, it’s really difficult to buy a house without a mortgage.
MARTIN: In Florida, even before Hurricanes Helene and Milton last year, some homeowners had just one option. This is the state-backed nonprofit Citizens Property Insurance, an insurer of last resort, you know, as it were. And then California had an insurer of last resort, which just ran out of money. It was bailed out. But is it just likely then that the federal government is going to step in in these places?
KEYS: I think at the moment, we have a system of 50 state regulators that are regulating the insurance market in a very fragmented and inconsistent way. And most states now have created their own insurers of last resort as a Band-Aid on a system that is now far overstretched.
