The Tortured Homeowners Department

by | Jun 3, 2024 | Risk Report | 0 comments

It is widely felt and reported that housing costs have entered the painful range. Especially more recent home buyers (with less equity built up) and those in areas prone to extreme weather events are struggling, because they are being hit thrice or even quince (fourice, quarce, quadrice?) And there is little relief on the horizon.

Chart showing an 85% chance of an above normal number of named storms, hurricanes and major hurricanes originating from the Atlantic Ocean in 2024.

This Saturday marks the beginning of the 2024 Atlantic hurricane season, and the National Oceanic and Atmospheric Administration (NOAA) predicts it will be a bumpier-than-normal ride. That would not be great news in any year, but is especially dire in this one. Most homeowners will—after the initial freeze response—react to the news by checking their insurance policy for coverage. That is if they have one.

Back in January, WSJ brought this graph showing the global insured losses due to extreme weather in a story talking about the emerging insurance deserts, which are areas no (private) insurers are willing to take on. Already, Florida’s insurer of last resort is the main provider in the state.

If insurers are not leaving markets altogether, they are raising premiums. One way for the insurers to cover their risk is by being insured themselves, and the premiums for reinsurance has taken quite a hike like everything else. Expensive reinsurance leads to expensive home insurance leads to expensive housing.

Bloomberg writes that the hardest hit areas inTexas and Florida now see significant increases in foreclosure filings, where the rest of the nation see a slight fall in filings.

Apart from increasing home insurance premiums, a lot of those who bought their homes just before the pandemic got an extension on loan payments during COVID but now have trouble catching up. And while home values have risen, so have mortgage rates—to around 7%—making it harder to sell the house or refinance the loan.

It is also worth noting that the 2019 buyers with larger mortgages ($1MN+) who got a 5-year ARM are coming up on their first adjustment, and though it might be capped, it will smart to go from a rate around 3% to a rate around 5% on a loan that size and look at another reset in six months.

In addition, increasing home values mean higher property taxes.

And last, but not least: zombies!

NPR’s Planet Money brought an investigative report on what is known as zombie mortgages. Back in the carefree days of the noughts, thousands of home buyers got second mortgages to finance their down payment. When it all came crashing down in 2008, those second mortgages became worthless, and many were told they had been cancelled.

However, in some cases they were bought for pennies—literally—on the ten-thousands and have been sitting in some banker’s box or dusty file cabinet since then. With property values going up, these zombie mortgages have now come alive and are back to collect.

Because those loans once were real, but records of where they went are poor, and state rules vary, those walking dead are hard to slay. Foreclosures and evictions are not uncommon, and it often takes a court case to beat them down.          

Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.