Mortgage Availability Faces Challenges Amid Insurance Crisis
The insurance industry's growing crisis could hinder mortgage accessibility in certain regions in the coming decades, according to Federal Reserve Chairman Jerome Powell.
During his congressional testimony, Powell highlighted that banks and insurance companies are withdrawing from coastal and fire-prone areas due to perceived high risks. This has led to the cancellation of homeowners insurance policies, which are typically required by mortgage lenders.
As a result, prospective homebuyers are increasingly turning to state-designed insurers of last resort, which often offer higher premiums and reduced coverage. Powell emphasized that banks and insurers will hesitate to continue providing loans and coverage in the face of mounting disaster evidence.
Powell acknowledged concerns about high housing costs, attributing them primarily to a lack of supply, which falls outside the Fed's control. While interest rate normalization may offer some relief in the future, Powell cautioned that lower rates might not necessarily slow housing inflation due to increased demand.
Regarding Fannie Mae and Freddie Mac, Powell stated that government backing reduces mortgage rates. He suggested that releasing them from conservatorship is a decision for Congress, while noting the potential benefits of returning housing finance to the private sector.