Unintended Consequences of "Mandatory" Flood Insurance

Kristian Blickle and Joao Santos

No 1012, Staff Reports from Federal Reserve Bank of New York

Abstract: We document that the quasi-mandatory U.S. flood insurance program reduces mortgage lending along both the extensive and intensive margins. We measure flood insurance mandates using FEMA flood maps, focusing on the discreet updates to these maps that can be made exogenous to true underlying flood risk. Reductions in lending are most pronounced for low-income and low-FICO borrowers, implying that the effects are at least partially driven by the added financial burden of insurance. Our results are also stronger among non-local or more-distant banks, who have a diminished ability to monitor local borrower adherence to complicated insurance mandates. Overall, our findings speak to the unintended consequences of (well-intentioned) regulation. They also speak to the importance of factoring in affordability and enforcement feasibility when introducing mandatory standards.

Keywords: insurance; unintended consequences; regulation; FEMA maps; flooding; mortgage lending; access to credit (search for similar items in EconPapers)
JEL-codes: G21 G28 Q5 Q54 (search for similar items in EconPapers)
Pages: 55
Date: 2022-04-01
New Economics Papers: this item is included in nep-ban, nep-env, nep-ias and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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