Flood underinsurance for streamside dwellers in certain regions more likely, report asserts

Homeowners facing flooding from rivers and creeks – numbering in the hundreds of thousands in the Southeast and central Southwest of the country — are more likely to be underinsured than sea coastal residents, according to a report issued Monday by the federal consumer financial protection agency.

According to the Consumer Financial Protection Bureau (CFPB), the analysis shows that the flood risk exposure of the mortgage market is more extensive and more geographically dispersed than previously understood. Homeowners can have significantly different access to insurance and therefore sharply different financial outcomes based on whether their risk of flooding comes from the coast or from inland rivers, streams, rainfall, and stormwater flooding.

The report measures flood risk data from both the Federal Emergency Management Agency (FEMA) and the First Street Foundation; it merges with data from the 2018-2022 Home Mortgage Disclosure Act (HMDA).

The report details that:

• Current flood insurance maps may not capture accurate flood risk exposure. FEMA flood insurance maps rate flood risk highest in coastal areas, while First Street’s estimates predict significantly more exposure in inland areas as well as broader exposure in coastal regions.
• More than 400,000 homes may be underinsured for flooding events in the southeast and central southwestern parts of the country alone. “The majority of flood insurance is provided through the federally subsidized National Flood Insurance Program, which uses the FEMA flood insurance maps to identify properties eligible for flood insurance,” the report states. “Homeowners with a mortgage are therefore likely to be underinsured for flooding if the FEMA flood insurance maps do not accurately measure future flood risk.”
• Homeowners who may be underinsured for flood risk also are least likely to be able to self-insure and recover from flooding. Borrowers in inland areas at risk of flooding, as identified using the First Street flood risk model, had lower incomes and put less money down to purchase their homes compared to homeowners not in inland flood areas. This included both borrowers living in areas at high risk of coastal flooding and borrowers whose homes are not in an area of high flood risk, as identified either by FEMA or First Street. This suggests that these borrowers have the fewest financial resources to recover from flooding and are most at risk of suffering catastrophic loss after a flood.

Flood Risk and the U.S. Mortgage Market