LOS ANGELES, CA – Federal Reserve Chair Jerome Powell warned Tuesday that homeowners in disaster-prone areas, including parts of California, could soon face a reality where mortgages are no longer available due to insurance companies and banks withdrawing from high-risk regions.
Speaking before the Senate Banking Committee, Powell primarily addressed monetary policy and interest rates, but during a question-and-answer session, Sen. Tina Smith (D-Minn.) asked about the impact of worsening natural disasters on mortgage availability. Powell acknowledged that financial institutions are increasingly retreating from areas vulnerable to wildfires and coastal flooding.
“Those banks and insurance companies are pulling out of areas, coastal areas and … areas where there are a lot of fires,” Powell said. “So what that’s going to mean is if you fast-forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage. There won’t be ATMs, the banks won’t have branches and things like that.”
Powell’s comments highlight the growing challenge of securing insurance in states like California, where climate-related disasters have led to rising costs and dwindling options for coverage. In many cases, mortgage lenders will not approve home loans unless insurance is in place, meaning that if coverage becomes unattainable, financing a home purchase in these areas could become impossible.
The implications extend beyond individual homeowners. Powell noted that state and local governments are increasingly stepping in to provide coverage where private insurers are pulling out.
“It will fall on homeowners, residents, but also on state and local governments,” Powell said. “What you see happening is that where private insurance is going away, states are stepping in because they want those areas to remain prosperous.”
The trend has already started in California, where several major insurers have limited or withdrawn coverage in fire-prone regions. State-backed insurance programs, such as the California FAIR Plan, have become a last resort for homeowners unable to secure policies through private providers. However, these plans often come with higher premiums and limited coverage, raising concerns about long-term sustainability.
The issue underscores the broader economic challenges posed by climate change. Multi-billion-dollar disasters, such as wildfires and extreme weather events, are becoming more frequent and costly, straining the ability of private insurers to manage risk. Some experts argue that a federally backed insurance model, similar to national healthcare programs, could help stabilize the market by spreading risk more broadly across the population.
Powell’s remarks suggest that without intervention, financial markets may respond by limiting access to home loans in at-risk regions, potentially leading to economic downturns in those communities. If mortgage availability declines, property values could drop, and state and local governments could face budget shortfalls due to lower tax revenues.
As the situation develops, officials and policymakers are likely to explore potential solutions to mitigate risk and ensure continued financial stability in disaster-prone areas.
