Mortgage Markets with Climate-Change Risk: Evidence from Wildfires in California

48 Pages Posted: 23 Jan 2020 Last revised: 2 Jul 2020

See all articles by Paulo Issler

Paulo Issler

University of California, Berkeley - Haas School of Business

Richard Stanton

University of California, Berkeley - Haas School of Business

Carles Vergara-Alert

University of Navarra - IESE Business School

Nancy Wallace

University of California, Berkeley - Real Estate Group

Date Written: July 1, 2020

Abstract

This paper studies wildfires in California from 2000 to 2018 using comprehensive merged data
on fires, mortgage and property characteristics, and weather. We find a significant increase in mortgage delinquency and foreclosure after a fire, but these effects decrease in the size of the fire,
which we argue results from coordination externalities afforded by large fires. Recent large losses,
combined with regulatory distortions, cast doubt on the continued ability of insurance companies
to absorb fire-related losses. This paper provides central banks and insurance regulators with
a framework for evaluating proposed banking and insurance-company models, similar to bank
stress-testing.

Suggested Citation

Issler, Paulo and Stanton, Richard H. and Vergara-Alert, Carles and Wallace, Nancy E., Mortgage Markets with Climate-Change Risk: Evidence from Wildfires in California (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3511843 or http://dx.doi.org/10.2139/ssrn.3511843

Paulo Issler

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Richard H. Stanton

University of California, Berkeley - Haas School of Business ( email )

Haas School of Business
545 Student Services Building #1900
Berkeley, CA 94720-1900
United States
(510) 642-7382 (Phone)
(510) 643-1412 (Fax)

Carles Vergara-Alert (Contact Author)

University of Navarra - IESE Business School ( email )

Av. Pearson 21
Barcelona, 08034
Spain
+34 932544200 (Phone)
+34 932534343 (Fax)

HOME PAGE: http://web.iese.edu/cvergara/

Nancy E. Wallace

University of California, Berkeley - Real Estate Group ( email )

Berkeley, CA 94720-1900
United States

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