Working Paper: NBER ID: w26322
Authors: Amine Ouazad; Matthew E. Kahn
Abstract: Using the government-sponsored enterprises’ sharp securitization rules, this paper provides evidence that, in the aftermath of natural disasters, lenders are more likely to approve mortgages that can be securitized, thereby transferring climate risk. The identification strategy uses the GSEs’ time-varying conforming loan limits at which mortgages bunch. Natural disasters increase bunching, suggesting an increased option value of securitization. The increase is lower where flood insurance is required. A model identified using indirect inference simulates increasing disaster risk without GSEs. Mortgage credit supply would decline in flood zones and lenders would have a greater incentive to screen mortgages.
Keywords: mortgage finance; climate change; securitization; natural disasters
JEL Codes: G21; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Natural disasters (H84) | Increased share of mortgages originated below the conforming loan limit (G21) |
| Natural disasters (H84) | Increased securitization probabilities (G19) |
| Increased securitization volumes (G10) | Impact of a 17% employment decline (F66) |
| Increased flood risk perceptions (Q54) | Lenders' securitization decisions (G21) |
| GSE securitization (H63) | Availability of mortgage credit in flood zones (G21) |