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September 20, 2014

Natural Disaster Risk Tied to Mortgage Default

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Natural Disaster Risk Tied to Mortgage Default

Little is known about the level to which mortgage portfolios are exposed to natural hazard risk from tornados, wildfires, flooding, earthquakes, sink holes, and other events. 

CoreLogic economists recently studied the theory that natural hazard risks actually raise the odds of mortgage default.  They developed an illustrative model that shows the likelihood of default as a function of traditional borrowers with loan and property traits typically used by mortgage professionals. In doing so, CoreLogic also established a natural hazard single risk score, representing the total natural hazard risk at a particular geographic location from all potential natural hazards combined.

"Our research demonstrates that borrowers, after controlling for their propensity to default based on traditional mortgage credit characteristics, default at a higher rate the higher the propensity of natural disaster is at the property level," the CoreLogic report concluded.

Source: "Natural Hazards Increase Propensity of Mortgage Default," Housing Wire (Aug. 15, 2013)

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