Climate change increasing risks for lenders, which may lead to higher borrowing costs for consumers

From CNBC: 2025-05-19 13:15:00

The increase in climate disasters is causing lenders to factor climate risk into credit scores, which could lead to higher borrowing costs for consumers. A new report projects a potential $5.36 billion in bank losses from climate-driven foreclosures in 10 years. Flood, wildfire, and wind risks are major concerns for lenders in states like California, Florida, and Louisiana.

Properties flooded in extreme weather events have a 40% higher foreclosure rate than unaffected homes, leading to increased foreclosures and insurance premiums in high-risk areas. While some lenders require flood insurance, overall, they do not consider climate change effects in underwriting. The annual costs of climate-related disasters have surged 1,580% over four decades.

Fannie Mae, a major player in the mortgage market, has yet to make changes to factor in climate risk, despite rising costs and risks to households, financial institutions, and investment portfolios. Staffing cuts under the Trump administration have halted updates to the NOAA’s billion-dollar disaster database, impacting the ability to track and mitigate climate-related risks.



Read more at CNBC: How climate change could hit your credit score