Bloomberg: “…A different kind of perfect storm had hit the Pelleys: volatile weather, a country failing to keep up with rising flood risk and a mortgage industry writing loans without considering the future of the environment around the home. Homeowners in Florida and California have already been trying to reconcile their mortgage duration and dwindling insurance options with neighborhoods that may not live to see 30 years. In a nation where long-term loans are the gateway to homeownership for most families, climate change is rewriting the basic assumptions about risk.  The lending industry relies on insurance to absorb some of the risk of mortgages failing. And the insurance industry is largely predicated on the idea that if a home is damaged or destroyed, a comparable structure should be rebuilt on the same spot. This model will have trouble accommodating land changed beyond recognition, no longer able to host a dwelling.  As the chairman of the Senate Budget Committee, US Senator Sheldon Whitehouse has been outspoken about the rising costs associated with climate change. “The fundamental problem here is that you have properties that in a fixed period of time are going to have no real value because of the risk of fire or flood,” says Whitehouse, a Democrat from Rhode Island who sits on the Environment and Public Works Committee.  Economists are beginning to sound warnings, urging the mortgage industry and insurers to face the risky reality that annual insurance policies cannot always be reconciled with 30-year loans. But the big business of housing hasn’t adopted climate underwriting. There’s no high interest rate penalty for buying in an area that’s a fire risk. There’s no climate credit score    The industries responsible for making sure homes keep selling are not adequately accounting for the rising but often invisible climate risk threatening American homes. That means the soaring costs due after a major weather event will land on individual consumers — and, eventually, the federal government. This feedback loop will intensify as disaster recovery costs soar and government-sponsored enterprises (GSEs) must backstop more failed mortgages.  “The risk is not borne by the entity that originates the loan,” says Benjamin Keys, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “The risk is borne by the US taxpayer.” And, like the Pelleys, some of those taxpayers will be left to rebuild their lives and homes on their own.  Somewhere in the backwaters of Wall Street, the Pelleys’ home loan, on a house that no longer exists, is bundled together with thousands of others into a financial instrument called a mortgage-backed security. The entire system is de facto nationalized, buoyed by the federal government via the Federal Housing Finance Agency. That agency oversees Fannie Mae and Freddie Mac, which back 58% of home loans in the US. Additionally, 22% of outstanding residential mortgages are backed by agencies like the Federal Housing Authority, Rural Housing Authority, and VA. These enterprises chug along quietly, siphoning up mortgages. The FHFA system, which is only for residential loans, is the outcome of the too-big-to-fail financial crisis in 2008, where the federal government stepped in to prevent the housing crisis from bankrupting the nation…”