Climate change

Climate Change Exacerbates Mortgage Risks, Imperiling Banking System

Strategic Insights

May 18, 2025 — 1 min read

A new report by First Street highlights the crucial link between climate-driven extreme weather events and mortgage defaults. The analysis, which marks the first national-scale evaluation of the relationship between physical climate risk and mortgage defaults, warns that foreclosure losses could reach $5.36 billion annually by 2035, threatening nearly 30% of all bank credit losses. The study reveals that flooding, a leading climate driver of foreclosure risk, often remains uninsured due to gaps in insurance coverage, posing a significant threat to the mortgage market.

Key Takeaways:

First Street's report is the first national-scale analysis of the relationship between physical climate risk and mortgage defaults.
The study projects that climate-driven foreclosures could bring $5.36 billion in annual bank credit losses by 2035 during severe weather years.
Flooding is the leading climate driver of foreclosure risk, with millions of properties facing risk that FEMA's Special Flood Hazard Areas fail to account for.
Rising insurance premiums, fueled by increasing costs of wind and wildfire insurance, have become an economic burden for homeowners, exacerbating the risk of missed mortgage payments or loan defaults.
Florida, Louisiana, and California are projected to account for 53% of all climate-related mortgage losses in 2025.
Financial institutions and regulators are encouraged to integrate climate risk data into credit models and risk management to mitigate mortgage market risks.

Statistics:

$5.36 billion: Annual bank credit losses projected by 2035 during severe weather years due to climate-driven foreclosures.
30%: Forecasted share of all foreclosure losses attributed to climate-driven foreclosures.
53%: Projected share of climate-related mortgage losses in 2025 accounted for by Florida, Louisiana, and California.

Sources:

First Street. (n.d.). Extreme Weather & Insurance Market Gaps: Filmstrip- Map Visual Analysis of Impacts on Valuation of Homes.&
First Street. (n.d.). Climate Implications: Headlines from the Report and Financial Services Industry.

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