Tag: Cyclones

Navigating the Storm: How Climate Change Influences Mortgage Defaults in Florida

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Flooding caused by Hurricane Florence. Public domain image by the National Guard of the United States.
Flooding caused by Hurricane Florence. Public domain image by the National Guard of the United States.

In an era where climate change is increasingly influencing financial stability, a new study sheds light on how extreme weather events like heavy rains and tropical cyclones affect mortgage defaults and prepayments. This topic, first brought into focus by Mark Carney, former Governor of the Bank of England, has been a growing concern among financial regulators worldwide.

Weather Extremes and Mortgage Risks

The study, conducted in Florida, involved analyzing a massive dataset of 69,046 loans, amounting to over 3.7 million loan-month observations. Florida, known for its vulnerability to hurricanes and floods, serves as an ideal case for this study. The researchers used an innovative Cox proportional hazard model, incorporating spatiotemporal characteristics and weather variables, to examine the influence of weather extremes on mortgage risks.

Key Findings

  • Impact of Tropical Cyclones: The study reveals a significant, non-linear relationship between the intensity of tropical cyclones and mortgage defaults. The risk of default escalates notably with the increase in hurricane categories, especially moving from category two to three.
  • Heavy Rains and Flood Risks: Heavy rainfall in flood-prone areas also shows a substantial impact on default risks. Interestingly, such conditions discourage prepayment of mortgages, as borrowers may prefer to retain the option to default if insurance fails to cover disaster damages.
  • Climate Change Projections: By employing the First Street flood model projections for 2050, the study anticipates a systematic increase in mortgage risks due to climate change. This increase varies based on different scenarios of extreme weather events.

The findings of this study underscore the importance of integrating climate-related risks into mortgage risk assessment. As the world grapples with the impacts of climate change, this research provides valuable insights for risk managers and financial institutions to better prepare for and mitigate these emerging risks. The study not only confirms previous beliefs about the impact of weather extremes on mortgages but also offers precise quantification of these effects, emphasizing the need for climate-adjusted credit risk assessment in the face of changing environmental conditions.

Ecological Threat Register 2020

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Understanding ecological threats, resilience and peace

The first edition of Ecological Threat Register (ETR) by the Institute for Economics and Peace (IEP) measures the ecological threats faced by 157 independent states and territories and provides projections to 2050.

The first edition of Ecological Threat Register (ETR) by the Institute for Economics and Peace (IEP) measures the ecological threats faced by 157 independent states and territories and provides projections to 2050.
Ecological Threat Register (ETR)

Topics covered in the ETR include population growth, water stress, food insecurity, droughts, floods, cyclones, rising temperatures, and rising sea levels. The report uses IEP’s Positive Peace framework to identify areas where resilience is unlikely to be strong enough to adapt or cope with these future shocks. 

The ETR places threats into two major clusters: resource scarcity and natural disasters. The resource scarcity domain includes food insecurity, water scarcity, and high population growth. At the same time, the natural disasters cluster measures threats of floods, droughts, cyclones, sea-level rise, and rising temperatures.

The ETR identifies three clusters of ecological hotspots, which are particularly susceptible to collapse:

  • The Sahel-Horn belt of Africa, from Mauritania to Somalia;
  • The Southern African belt, from Angola to Madagascar;
  • The Middle East and Central Asian belt, from Syria to Pakistan.

These countries compete for scarce resources, which creates conflict. The conflict, in turn, leads to further resource depletion. These countries are more likely to experience civil unrest, political instability, social fragmentation, and economic collapse.

While high resilience regions, such as Europe and North America, have superior coping capacities to mitigate the effects of these ecological threats, they will not be immune from large flows of refugees. Refugee influx, in turn, can cause considerable unrest and shift political systems.

There are 141 countries exposed to at least one ecological threat between now and 2050. The 19 countries with the highest number of risks have a population of 2.1 billion people. Approximately one billion people live in countries that do not have the resilience to deal with the ecological changes expected. 

The countries with the largest number of people at risk are Pakistan, with 220 million people, and Iran with 84 million people. In such circumstances, even small events could spiral into instability and violence, leading to mass population displacement, which would negatively impact regional and global security.

The countries at the highest risk also face food insecurities and crisis-level water demands.