WASHINGTON—The CFPB has issued a new report that found significant differences in the likelihood that homeowners with a mortgage are adequately insured against flooding based both on location and on income and assets, the Bureau said.
According to findings, homeowners in coastal areas were most likely to have flood insurance and generally had higher incomes and assets, suggesting that they were the best positioned to recover from flooding. Homeowners living near inland streams and rivers, however, were less likely to have flood insurance and less likely to have other financial resources to draw on to recover from a flood. The report uses a sample of mortgage applications from 2018-2022.
The report’s key findings, according to the CFPB:
- Current flood insurance maps may not capture accurate flood risk exposure. FEMA flood insurance maps rate flood risk highest in coastal areas, while First Street’s estimates predict significantly more exposure in inland areas as well as broader exposure in coastal regions.
- Over 400,000 homes may be underinsured for flooding events in the southeast and central southwestern parts of the country alone. The majority of flood insurance is provided through the federally subsidized National Flood Insurance Program, which uses the FEMA flood insurance maps to identify properties eligible for flood insurance. Homeowners with a mortgage are therefore likely to be underinsured for flooding if the FEMA flood insurance maps do not accurately measure future flood risk, the CFPB said.
- Homeowners who may be underinsured for flood risk also are least likely to be able to self-insure and recover from flooding. Borrowers in inland areas at risk of flooding, as identified using the First Street flood risk model, had lower incomes and put less money down to purchase their homes compared to homeowners not in inland flood areas. This included both borrowers living in areas at high risk of coastal flooding and borrowers whose homes are not in an area of high flood risk, as identified either by FEMA or First Street. This suggests that these borrowers have the fewest financial resources to recover from flooding and are most at risk of suffering catastrophic loss after a flood, the CFPB said.
Read the report, Flood Risk and the US Mortgage Market.