California Wildfires, Property Damage, and Mortgage Repayment

Siddhartha Biswas, Ethan Hossain and David Zink

No 23-05, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper examines wildfires’ impact on mortgage repayment using novel data that combines property-level damages and mortgage performance data. We find that 90-day delinquencies were 4 percentage points higher and prepayments were 16 percentage points higher for properties that were damaged by wildfires compared to properties 1 to 2 miles outside of the wildfire, which suggests higher risks to mortgage markets than found in previous studies. We find no significant changes in delinquency or prepayment for undamaged properties inside a wildfire boundary. Prepayments are not driven by increased sales or refinances, suggesting insurance claims drive prepayment. We provide evidence that underinsurance may force borrowers to prepay instead of rebuild.

Keywords: wildfires; mortgage; prepayment risk; climate risk; physical risk; underinsurance (search for similar items in EconPapers)
JEL-codes: G21 G51 Q54 (search for similar items in EconPapers)
Pages: 37
Date: 2023-03-20
New Economics Papers: this item is included in nep-env and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:95860

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DOI: 10.21799/frbp.wp.2023.05

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