Thirteenth International Conference on Climate Change: Impacts & Responses

Abstract

Hurricanes are growing more destructive as a result of rising global temperatures. In some cases hurricanes cause over $100 billion in damage to property and output. In literature, it is difficult to identify the impact of hurricanes on other aspects such as mortgage defaults and losses as disaster assistance and insurance tend to offset hurricane losses. Moody’s Analytics (2017) estimates that the economic aid associated with Hurricane Katrina was $185.7 billion, with $50 billion in insurance and $135.7 billion in government aid, more than the loss of $174.5 billion. Consistently, previous studies find that Hurricane Katrina had little impact on mortgage defaults and foreclosures. This study attempts to fill this research gap by focusing on two hurricanes, Harvey and Maria, in 2017, as the variation in government aid offers a unique opportunity to quantify the impact of hurricanes on mortgage performance. While the government aid amounted to $13 billion for Hurricane Harvey 180 days after landfall, it was only about $2.4 billion for Hurricane Maria, despite that their overall damage estimates are close (Willison et al., 2019). We utilize the historical loan-level data from two government-sponsored enterprises, Fannie Mae and Freddie Mac, and a differencing-in-differences identification strategy. Our control group consists of loans from areas in LA and TX that are not affected by disasters. The main finding is, Hurricane Maria caused the 180 or more days delinquency rate and the loss given default in Puerto Rico to increase by about 80% and 30% two years after the hurricane, respectively.