A recent report by First Street highlights that the risk of foreclosures is increasing due to climate change effects, primarily linked to flooding. These incidents, especially outside FEMA's flood zones where insurance isn't mandatory, are significant drivers of foreclosures post-disaster. The economic fallout observed after Hurricane Sandy exemplifies the risks, as home prices plummeted, leading to increased foreclosures and unanticipated credit losses. The report underscores the need to integrate climate risk into credit risk assessments, predicting rising losses driven by escalating flooding and insurance crises.
Flooding events are the primary driver of post-disaster foreclosures, especially outside FEMA's SFHAs where flood insurance isn't mandatory.
The combination of depressed home prices, lower equity, and flooding impacts post-Hurricane Sandy led to a spike in foreclosures among damaged properties.
Climate change is becoming a critical factor to evaluate alongside traditional metrics in credit risk models, necessitating its inclusion as the 6th C.
Indirect economic pressures could result in credit losses estimated at $1.2 billion this year, potentially rising to $5.4 billion by 2035.
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