The growing insurance industry crisis could make it difficult to obtain a mortgage in certain parts of the country in the coming decades, the president of the Federal Reserve Jerome Powell said on Tuesday.
“If you advance quickly by 10 or 15 years, there will be regions of the country where you cannot obtain a mortgage,” he said in his half-yearly testimony to the Congress, noting that banks and companies of insurance has withdrawn from the coastal areas and subjects to the fire which they consider too high.
Insurers have canceled policies across the country, while climate change intensifies natural disasters, selling them with losses of several billion dollars. State Farm, for example, canceled thousands of policies in the Pacific Palisades in Los Angeles for months before being devastated by forest fires.
Given that mortgage lenders generally require home insurance as a loan condition, potential buyers with few alternatives are increasingly buying coverage from insurers designed by the state of last appeal, which can have premiums higher and leaner coverage than traditional alternatives.
Banks and insurers will not continue to make loans or provide coverage in the face of disasters, Powell said in response to a minnesota senator Tina Smith.
Questions about high housing costs have appeared several times throughout Powell’s testimony. The president of the Fed reiterated that the standardization of interest rates can help buyers in the coming years, but a large part of the accessibility problems are reduced to a lack of supply, a problem outside the competence of the Fed.
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“There is a short -term problem that will disappear in the years to come, but there is a longer -term problem with the affordability of the accommodation, and it will be something that is not in our authorities or From our powers to affect, “said Powell in response to a question from Senator Ruben Gallego.
Even if the rates drop, Powell said it was not “obvious” that the lower rates would slow housing inflation because demand would likely increase.
“It would unlock people’s low mortgages, but it creates both a buyer and a seller,” said Powell. “It is not clear that it would be something that would drop the inflation of the accommodation.”
Asked about the future of Fannie Mae and Freddie Mac, Powell said that the government’s support by mortgage giants “maintains mortgage rates”. He said that freeing them from the supervision was ultimately a question for congress, adding that “putting the funding for housing in the private sector to a certain longer -term call”.
