Powell Warns U.S. Mortgages May Become Harder to Get in High-Risk Areas
Fed Chair Jerome Powell warns that rising insurance costs in the United States may make it harder to get mortgages in disaster-prone areas, impacting homebuyers.
Federal Reserve Chairman Jerome Powell warned on Tuesday that in the next 10 to 15 years, it could become difficult to get a mortgage in some areas of the U.S. Speaking to Congress, Powell explained that banks and insurance companies are pulling out of regions at high risk for natural disasters, such as coastal and wildfire-prone areas. Without insurance, getting a mortgage becomes nearly impossible.
How the Insurance Crisis Affects Home Loans
Climate change is leading to more frequent and severe natural disasters, causing insurance companies to suffer huge financial losses. As a result, many are canceling policies, leaving homeowners with limited options. For example, State Farm recently dropped thousands of policies in Los Angeles’ Pacific Palisades neighborhood just before wildfires struck.
Most mortgage lenders require homeowners to have insurance, so when traditional insurers stop offering coverage, people have to rely on government-backed insurers. However, these policies often cost more and provide less protection, making homeownership more expensive and risky.
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Interest Rates and Housing Affordability
Powell also addressed concerns about rising home prices. He said that lowering interest rates could help buyers, but the bigger issue is that there aren’t enough homes available. This problem, he noted, is beyond the Federal Reserve’s control.
“There’s a short-term issue that may improve in a few years, but the long-term challenge of housing affordability is something we can’t fix,” Powell told Congress.
Even if interest rates drop, Powell warned that housing costs might not decrease significantly. Lower rates could encourage homeowners to sell, increasing both buyers and sellers without necessarily lowering prices.
Future of Mortgage Giants Fannie Mae and Freddie Mac
Powell also discussed government-backed mortgage lenders Fannie Mae and Freddie Mac, saying they help keep mortgage rates lower. He added that while moving housing finance back to the private sector could be an option in the future, Congress would need to make that decision.
Also Read: Lower Mortgage and Refinance Rates in the USA – Secure a Better Deal Today
