Federal Reserve Chairman Jerome Powell testified mostly about interest rates before the Senate Banking Committee on Tuesday, but he usually discusses. However, during the questions and answering period, Sen. Tina Smith (D-Minnesota) asked about the availability of mortgages in disaster-prone states like California.
This is what Powell had to say:
“These banks and insurance companies are in areas where there are many fires, coastal areas, … “So, what that means is, if you fast forward 10 or 15 years, you’ll get a mortgage There will be areas of the country that you cannot enter. There will be no ATMs, there will be no branches in the banks and that’s what it is.”
Let’s bite that. The Fed chair has observed that insurance is becoming increasingly difficult to reach in states like California, and he may not be able to get a mortgage in some areas around ten years from now. I say it can’t. It’s simply surprising and he’s not wrong.
A home along the Pacific Coast Highway is burning out from a Palisade fire in Malibu, California on Sunday, January 12th, 2025 (AP Photo/Mark J. Terrill)
Mortgage lenders won’t extend their loans to people unless they have insurance. If you don’t have insurance, you will not get a mortgage.
Powell makes the obvious observation that once things go by, there is no financial incentive to issue a mortgage in a place like California. This really highlights what I have been saying for a long time. Billion-dollar disasters like climate change and the Los Angeles fires are beyond the control of most private insurance companies.
We need to spread risk across the population. So it’s like a Medicare approach to the scope of property. This is to keep your premiums affordable, just like what we saw in terms of healthcare using the single payer system. It allows you to spread risk across the entire population and manage it.
This is the amount of home prices rising in California last year.
It has the highest price in the US, not the world. Powell observes that if they cannot somehow mitigate the risk of insurance, they will not get a mortgage, so that mortgage lenders feel more comfortable. As Powell said, it clearly creates a very dire situation.
“It’ll fall not only to homeowners, residents, but also to state and local governments. What you’re going on is that where private insurance is gone, they want those areas to continue to thrive. So the state is intervening,” Powell pointed out.
In short, this is more than just a problem for policyholders and policyholders. It’s also a problem for taxpayers.
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