Key Takeaways:
– In 2023, the United States has experienced the highest number of billion-dollar natural disasters in a year.
– Housing professionals need to understand the financial impact of climate change on the real estate industry.
– CoreLogic provides housing professionals with portfolio studies that focus on climate risk.
– Real estate investors can use risk data to make informed decisions about property investments.
– Loan servicers can use predictive analytics to prepare for mortgage delinquencies after natural disasters.
– Homeowners insurance prices are increasing and need to be factored into loan underwriting and servicing.
– The Securities and Exchange Commission’s climate-disclosure rule may require public companies to disclose climate risk.
– Housing agencies like HUD, FHFA, and FHA might enforce similar climate risk disclosure requirements.
– Concern is growing about the threat uninsured climate-related losses pose to the financial system and economy.
– FHFA has issued a request for information on climate and natural disaster risk management in housing agencies.
HousingWire:
CEDAR CREEK, Texas — Natural disasters are becoming more severe and more frequent. So far in 2023, 24 billion-dollar natural disasters have struck the United States, according to data from the National Centers for Environmental Information at the National Atmospheric and Oceanic Administration (NOAA).
This marks the all-time highest number of natural disasters causing $1 billion or more in losses in a year — and the year isn’t even over yet.
The alarming data underscores why housing professionals need to understand the financial impact of climate change on the real estate industry, George Gallagher, senior leader and principal of ESG, climate risk, natural hazard and spatial solutions at CoreLogic told attendees during a session at HousingWire Annual on Wednesday.
In an industry that is always looking for more data and more insights, CoreLogic’s financial analytics around climate change can offer “a path to clarity,” Gallagher said.
For instance, CoreLogic provides housing professionals with portfolio studies that have a special focus on climate risk. These studies help locate a concentration of risk (i.e. flooding or wildfires) in a loan portfolio to address potential problems.
A number of players in the industry benefit from the risk data, including real estate investors who need additional insights to make informed decisions. For example, if a property is exposed to high climate risk, its market value may decline. This may give investors pause as to whether a particular real estate investment is a sound one.
Loan servicers can use predictive analytics that map natural disasters to prepare for a wave of mortgage delinquencies after a natural disaster strikes.
“As professionals are underwriting loans, servicing them or investing in loan portfolios, there is a big increase in the price of homeowners insurance,” Gallagher highlighted. “And this has to be factored into the calculus for underwriting, the profit potential for servicing, as well as how those loans are packaged into a security.”
The CoreLogic presentation at HousingWire Annual is timely with the anticipated release of the Securities and Exchange Commission’s climate-disclosure rule.
Started in March 2022, the SEC proposal seeks to amend disclosure law to better account for climate risk among public companies. If finalized this fall, the rule requires public companies to disclose items like greenhouse gas emissions or the physical risk posed by any entity they might control, among other items.
If adopted, the rule might have a ripple effect on housing agencies such as the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA) and Federal Housing Administration (FHA), which might enforce similar requirements.
Gallagher also pointed to growing concern about the threat uninsured climate-related losses pose to the broader financial system and economy.
In January 2021, the FHFA issued a request for information focused on climate and natural disaster risk management at Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
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Property Chomp’s Take:
In today’s world, natural disasters are becoming more severe and more frequent. According to data from the National Centers for Environmental Information at the National Atmospheric and Oceanic Administration (NOAA), the United States has already experienced 24 billion-dollar natural disasters in 2023. This is the highest number of such disasters causing $1 billion or more in losses in a single year. These alarming statistics highlight the need for housing professionals to understand the financial impact of climate change on the real estate industry.
During a session at HousingWire Annual, George Gallagher, the senior leader and principal of ESG, climate risk, natural hazard and spatial solutions at CoreLogic, emphasized the importance of data and insights in the industry. CoreLogic offers financial analytics that can provide a “path to clarity” for housing professionals. For example, they provide portfolio studies that focus on climate risk, helping identify concentrations of risk, such as flooding or wildfires, in loan portfolios. This information allows professionals to address potential problems and make informed decisions.
One group that benefits from this risk data is real estate investors. By understanding the climate risk associated with a property, investors can assess its market value and determine if it is a sound investment. High climate risk exposure may lead to a decline in market value, which could give investors pause. Additionally, loan servicers can use predictive analytics to map natural disasters and prepare for potential mortgage delinquencies that may occur after a disaster strikes.
However, it is essential to consider the increased price of homeowners insurance in this context. As professionals underwrite loans, service them, or invest in loan portfolios, the rising cost of insurance must be factored into the decision-making process. This includes considerations of underwriting, profit potential for servicing, and how loans are packaged into securities.
The timing of CoreLogic’s presentation at HousingWire Annual is noteworthy, as the Securities and Exchange Commission (SEC) is expected to release a climate-disclosure rule. The SEC proposal, initiated in March 2022, aims to improve disclosure laws to account for climate risk among public companies. If finalized this fall, the rule would require companies to disclose greenhouse gas emissions and the physical risks posed by entities they control, among other items. This rule could potentially influence housing agencies like the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA), and the Federal Housing Administration (FHA), leading to similar requirements.
Furthermore, there is a growing concern about the threat uninsured climate-related losses pose to the broader financial system and economy. In January 2021, the FHFA issued a request for information focused on climate and natural disaster risk management at Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. This highlights the need for proactive measures to address the potential economic impact of climate change.
In conclusion, housing professionals must recognize the importance of understanding the financial impact of climate change on the real estate industry. CoreLogic’s financial analytics offer valuable insights that can help professionals make informed decisions and mitigate risks associated with natural disasters. With the anticipated release of the SEC’s climate-disclosure rule, it becomes even more crucial for housing agencies and companies to consider climate risk in their operations. By doing so, they can contribute to a more resilient and sustainable real estate industry.
