Climate Change Threatens U.S. Mortgage Market Stability

Climate change is increasingly jeopardizing the stability of the U.S. mortgage market, with projections indicating substantial financial losses in the coming years. A recent report by risk modeling group First Street forecasts that by 2035, climate-induced foreclosures could result in $5.36 billion in annual bank credit losses during severe weather years, accounting for nearly 30% of all foreclosure losses. (axios.com)

The report identifies Florida, Louisiana, and California as the most affected states, collectively representing 53% of climate-related mortgage losses in 2025. These states are particularly vulnerable due to their susceptibility to hurricanes, flooding, and wildfires.

Rising insurance premiums and the exclusion of flood coverage in many policies exacerbate the risk of foreclosures. High insurance costs can strain homeowners' finances, increasing the likelihood of missed mortgage payments and defaults.

Jeremy Porter, head of climate implications at First Street, emphasized the urgency of the situation, stating, "Mortgage markets are now on the front lines of climate risk."

The financial sector is beginning to recognize climate change as a key determinant in investment and mortgage performance. The report calls for financial institutions and regulators to integrate climate risk data into credit models and risk management strategies to address these emerging challenges.

The implications of climate change on the mortgage market are profound. Homeowners in high-risk areas may face escalating insurance premiums, making homeownership less affordable and increasing the risk of foreclosure. Additionally, declining property values in these regions could destabilize local and national real estate markets, potentially leading to broader economic repercussions.

In response to these challenges, the Federal Housing Finance Agency (FHFA) has introduced initiatives to address climate-related financial risks. In 2023, Fannie Mae and Freddie Mac issued over $11 billion in green bonds to promote sustainable housing solutions. These efforts aim to foster a shift toward greener, more resilient housing infrastructure.

The First Street report serves as a critical wake-up call for the financial sector, policymakers, and homeowners. The projected increase in climate-driven foreclosures and associated financial losses necessitates immediate and coordinated action to integrate climate risk assessments into financial and regulatory frameworks. Failure to do so could result in significant economic and social consequences in the coming decades.