Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters

No 26322, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using the government-sponsored enterprises’ sharp securitization rules, this paper provides evidence that, in the aftermath of natural disasters, lenders are more likely to approve mortgages that can be securitized, thereby transferring climate risk. The identification strategy uses the GSEs’ time-varying conforming loan limits at which mortgages bunch. Natural disasters increase bunching, suggesting an increased option value of securitization. The increase is lower where flood insurance is required. A model identified using indirect inference simulates increasing disaster risk without GSEs. Mortgage credit supply would decline in flood zones and lenders would have a greater incentive to screen mortgages.

JEL-codes: G21 Q54 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-env, nep-ias and nep-ure
Note: AP EEE POL
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Citations: View citations in EconPapers (11)

Published as Amine Ouazad & Matthew E Kahn & Stijn Van Nieuwerburgh, 2022. "Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters," The Review of Financial Studies, vol 35(8), pages 3617-3665.

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Journal Article: Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters (2022)
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