Escalating Insurance Crisis Threatens Mortgage Accessibility in High-Risk Coastal Areas
The burgeoning insurance industry crisis could hinder mortgage access in certain regions over the next decade, according to Federal Reserve Chairman Jerome Powell.
"In 10 or 15 years, there will be areas where you won't be able to obtain a mortgage," Powell testified to Congress, highlighting the withdrawal of banks and insurance companies from coastal and fire-prone areas deemed high-risk.
With climate change intensifying natural disasters, insurers have been canceling policies nationwide, incurring billions in losses. Prospective homebuyers with limited options are increasingly forced to seek coverage from state-backed insurers of last resort, which often offer higher premiums and reduced coverage compared to traditional alternatives.
In response to Senator Tina Smith's inquiry, Powell emphasized that banks and insurers cannot continue providing loans or coverage amid escalating disaster risks.
Despite concerns over high housing costs, Powell acknowledged that interest rate normalization may alleviate some buyer pressures in the future, while affordability issues remain primarily driven by supply constraints, a matter beyond the Fed's mandate.
"There's a short-term problem that will subside over the coming years, but housing affordability poses a longer-term challenge that lies outside our domain," Powell stated in response to Senator Ruben Gallego.
Addressing the fate of Fannie Mae and Freddie Mac, Powell highlighted the government's mortgage support in lowering rates. He indicated that releasing the firms from conservatorship rests with Congress, noting the potential benefits of a private sector-driven housing finance system in the long run.