The Washington Post Covers LOUD’s Latest Research on Climate Risk and Mortgage Loans

The research suggests that climate-related risks are reshaping mortgage decisions, interest rates, and the types of lenders issuing these loans. Specifically, California’s escalating wildfire risk is impacting its mortgage market. As wildfires intensify, traditional brick-and-mortar banks are approving fewer home loans in high-risk areas, concerned that fires could lead to increased borrower defaults. In contrast, online or “fintech” lenders—those without physical branches—are doing the opposite: they offer more favorable loan terms in these risky areas and are gaining market share.

Using wildfire risk data from the Federal Emergency Management Agency (FEMA), Haupert and co-author Jesse Keenan—Director of the Center on Climate Change and Urbanism at Tulane University’s School of Architecture—examined how traditional and fintech mortgage lenders approach census tracts in California that FEMA has rated as very high risk. They compared those areas to less vulnerable regions, analyzing mortgage applications from the nation’s 650 largest lenders between 2018 and 2020 to understand how wildfire risk affects loan approval rates and interest rate pricing.

As the world continues to warm and more borrowers turn to the convenience of online lending platforms, Haupert warns that fintech lenders’ willingness to issue loans in high-risk fire zones could have far-reaching consequences for the housing market. Following a wildfire, spikes in defaults and early mortgage repayments could result in losses for Fannie Mae and Freddie Mac—the government-backed mortgage entities whose obligations are supported by taxpayers.

It’s unclear why traditional and fintech lenders behave differently. One possibility is that traditional lenders usually retain mortgages longer than online lenders. Since fintech lenders often sell off loans soon after origination—passing the risk to the financial institutions that purchase them—they may be more inclined to accept short-term risks.

“The loan officer who works just a few blocks away from homes that recently burned down has firsthand experience with climate change and perceives the risk more directly,” Haupert explained. “That kind of awareness simply isn’t possible for a fintech lender. If a larger and larger share of the market starts adopting these practices,” he added, “then I’d be seriously concerned about the emergence of systemic risk.”

Tyler Haupert is an Assistant Professor of Urban Studies at NYU Shanghai. He also serves as a Faculty Affiliate at the Shanghai Key Laboratory of Urban Design and Urban Science (LOUD), the NYU Furman Center, the NYU Wagner Graduate School of Public Service, and the Social Policy Institute at Washington University in St. Louis. Positioned at the intersection of housing and neighborhood quality in advanced economies, his research program encompasses three pillars. First, he measures financial technology’s (fintech’s) role in mediating access to homeownership and mortgage credit. Here, he focuses on whether fintech is altering or concretizing longstanding racial, ethnic, and spatial disparities. Second, he investigates the relationship between housing and neighborhood change; this work includes studies of gentrification, neighborhood population loss, and place-based housing investment incentives. Third, he explores housing as a social determinant of health, including housing’s role in exposing residents to climate risks, homeownership’s impact on physical and mental health, and housing’s role in protecting residents from health risks including homelessness and the COVID-19 pandemic.

Citation:

Haupert, T., & Keenan, J. M. (2025, April 10). Bluelining in Red Hot Fire Zones: Fintech and Traditional Mortgage Lending in California's Wildfire Risk Zones. SSRN. https://doi.org/10.2139/ssrn.5236529