The first step to fixing a problem is acknowledging a problem exists.
Six months after the U.S. Department of Housing and Urban Development (HUD) convened an insurance summit to address ongoing challenges in the home insurance market, HUD has acknowledged a problem exists — and would like the public's help fixing it.
On Monday, December 30, 2024, HUD’s Office of Policy Development and Research issued a Request for Information (RFI) seeking input “regarding how best to assess measures to increase the resilience of residential properties to natural hazards and extreme weather." Comments are due by February 28, 2025.
According to the RFI, the insurance summit HUD convened in July “highlighted the need to increase property resilience to natural hazards and to clarify the relationship between resilience measures and costs to property owners, including the cost of insurance.”
Intercontinental Exchange, Inc., (ICE), owner of the New York Stock Exchange, assesses average monthly insurance payments have risen 52% since the start of 2020, three times the rate of rising principal and interest amounts, “with increases in some higher-risk areas as high as 90% over that same period.”
With the information it manages to gather HUD says it intends “to develop policies that better support HUD’s program participants in increasing resilience to natural hazards, including extreme weather, and accessing affordable insurance.”
Reading between the lines, it is difficult to ascertain whether HUD is acknowledging the escalating impacts of climate change on the housing market, or the escalating impacts of a deteriorating home insurance market on affordable homeownership. Or, is it both, the latter proving a symptom of the former?
HUD did not respond to a request for comment on why the phrase "climate change" does not appear a single time in Monday's RFI to characterize the assorted, evolving environmental perils and pressures driving the deterioration of property insurance markets nationwide. "Natural hazard" appears 11 times, "extreme weather" appears 5 times, and the phrase "natural disaster" is used twice.
Executives and experts across the mortgage lending and insurance industries have warned that mortgaged borrowers and properties are not being underwritten for the rising costs of homeownership, as fueled by the accelerating impacts of climate change actively being priced into borrowers’ ballooning mortgage payments.
And yet, rising insurance costs are only the first mechanism to price climate change into the real estate market,” First Street Foundation’s head of Climate Implications Research, Jeremy Porter, told NMP. Underinsurable homes in underinsurable communities across the U.S. warrant lower valuations, experts that NMP has interviewed agree.
“All of a sudden,” Porter said, “you have people that probably would’ve bought a cheaper house if they knew that their insurance was going to be that much.” Worse, disinvestment and managed retreats from certain markets is expected where insuring homes becomes prohibitively expensive.
Meanwhile, Congress’s Joint Economic Committee (JEC) calculated in a mid-December report that homeowners insurance premiums increased 44% nationally from 2011-2021. “People are struggling with mounting premium costs, and some home sales are falling through as people cannot secure insurance, a requirement to get a mortgage,” the report's authors wrote.
Responsible for the administration of Federal Housing Administration (FHA)-backed mortgages, HUD cites difficulty obtaining sufficient insurance coverage at a reasonable price as impacting both new and existing FHA borrowers in all property types, including site-built single family, manufactured housing, and multifamily housing.
“These challenges are occurring at the same time the nation faces a housing supply shortage, and they could further decrease housing affordability and availability across the nation,” HUD’s RFI reads — and as FHA borrowers are showing increasing signs of strain.
The latest data available from the Mortgage Bankers Association (MBA) shows FHA loans recorded a 10.46% delinquency rate in the third quarter of 2024, up from 9.5% in the third quarter of 2023. From the end of May to end of November 2024, the share of Ginnie Mae loans in forbearance increased to 1.11% from 0.39%.
Participants in HUD’s myriad affordable housing programs face “unique challenges” from the insurance crisis, the RFI notes, because “affordable housing providers generally cannot pass their insurance cost increases on to tenants through increased rents.”
In response to rising cost pressures, some HUD program participants are reducing insurance coverage and cutting back on providing services or amenities, while others are delaying capital repairs, or considering the sale of properties and portfolio consolidation.
