Flood Damage and Federally Backed Mortgages in a Changing Climate

As the climate continues to change, flood damage to homes in the United States is expected to increase. Many of those homes have mortgages that are guaranteed by a government-sponsored enterprise or backed by the Department of Veterans Affairs or the Federal Housing Administration. When homes sustain flood damage, homeowners may change their decisions about if and when to repay their mortgage, and the federal government is exposed to those changes through its mortgage guarantee programs. In this report, the Congressional Budget Office estimates how much flood damage homes with federally backed mortgages are expected to face in two multiyear projection periods, one centered on 2020 and the other centered on 2050. Unless otherwise noted, CBO’s damage estimates use a central climate change projection. The key conclusions are the following: 

• Expected Annual Damage (EAD). In the 2020 projection period (which generally captures current climate conditions), homes with federally backed mortgages face EAD of $9.4 billion, CBO estimates. That amount would rise by about one-third to $12.8 billion (in 2020 dollars) in the 2050 projection period if all factors other than the climate remained unchanged. Under a lower climate change projection, EAD in the 2050 period is $10.2 billion; under a higher one, EAD is $16.1 billion. 
• Total Expected Damage Over a 30-Year Period. To illustrate how expected flood damage over many years of ownership would compare with the property value, CBO calculated the present value of experiencing EAD each year for 30 years. The total expected damage over a 30-year period to homes with federally backed mortgages rises from $190 billion (in present-value terms) in the 2020 period to $258 billion in the 2050 period. 
• Flood Damage and Property Values. Properties accounting for about 7 percent of the total value of properties with federally backed mortgages face a risk of flood damage each year in the 2020 period. Among those homes, the total expected damage over 30 years is about 14 percent of the total property value. Among all homes with federally backed mortgages, that share is 1 percent. 
• Location of Flood Damage. In both periods, about 40 percent to 50 percent of flood damage occurs outside of areas designated as special flood hazard areas by the Federal Emergency Management Agency, CBO estimates. More than half of all expected damage to homes with federally backed mortgages is in coastal areas. The top 10 counties in terms of EAD account for more than one-quarter of EAD nationwide. Expected flood damage is small relative to total property value, but the potential exposure of mortgages to flood risk varies significantly within the country. 

Expected damage is concentrated in certain geographic areas, such as the Atlantic and Gulf Coasts, where it may be large relative to property values. Almost half of expected damage to homes with federally backed mortgages is located in areas where homeowners are not required to carry flood insurance. Moreover, fees for mortgage guarantees do not vary by the amount of flood risk