Elly Leonida: Mortgage Servicers Must Stay Prepared For Rising Flood Risk

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PERSON OF THE WEEK: The risk of flooding continues to rise for U.S. residential properties – with 2019 being one of the wettest years on record for precipitation – but the question remains: Are mortgage servicers prepared for a possible major flooding event?

A recent analysis from First Street Foundation finds that the number of U.S. residential properties at “substantial risk” of flooding is about 1.7 times higher than estimated by FEMA.

Of the approximately 14.6 million properties at substantial risk, about 5.9 million are owned by people who are currently unaware of – or are underestimating – the risk they face because they are not identified as being within the FEMA SFHA zone.

States currently with the most properties at substantial flood risk include West Virginia (24.4%), Louisiana (21.1%), Florida (20.5%), Idaho (14.8%) and Montana (14.2%).

States with the fewest properties at substantial flood risk include Arizona (3.7%), Nevada (3.7%), Washington D.C. (5.3%), Colorado (5.7%), and Maryland (6.2%).

When adjusting for future environmental changes, the First Street Foundation report finds that by 2050, the number of properties with substantial risk will reach 16.2 million, an increase of 10.9%.

States that will see their flood risk rise the most over the next 30 years include Louisiana (69.7%), Delaware (21%), New Jersey (19.1%), Florida (18.6%), and South Carolina (16.7%).

In total, 21.8 million properties in the U.S. are at “any risk,” according to the report.

Elly Leonida, flood operations manager, FVP, LERETA, recently spoke with MortgageOrb about the factors that are increasing flood risk – and how servicers can stay prepared.

Q: What was 2019 like in terms of flood activity?  

Leonida: When it comes to tracking flooding events, 2019 was the second wettest year on record for the U.S.

Last year’s extremes included annual rainfall that was 4.84 inches above average, according to the National Centers for Environmental Information – and the nation experienced $14 billion in weather and climate disasters last year.

Three of the flooding events were floods along the Mississippi, Missouri and Arkansas rivers. These floods – from spring to July of 2019 – were the longest on record, breaking the 1927 Great Flood Record.

In addition, some communities flooded more than once. In some cases, residents had barely any time to clean up and prepare for the next flood.

Q: Is flooding becoming more prevalent because of population growth?

Leonida: Yes, flooding is more prevalent due to significant growth in our population. During the last 50 years, the population of the U.S. has doubled, according to the U.S. Census. With the significant population boom, there will be a housing boom to support more people. In many cases, we have changed the landscape with these new buildings and that has resulted in a flooding increase.

To understand how flooding can be more severe now, think about a 50-acre piece of land covered in trees. Let’s say that three inches of rainfall on that land in a heavy downpour. Natural land (undeveloped) is good at absorbing and holding water. The leaves on the ground slow water absorption. That rain might be retained by the land and release slowly over several days.

Now, imagine the same piece of land converted to a residential subdivision. That 50 acres is now completely paved with concrete. If three inches of rain falls, none of it is absorbed. So, the gallons of water run straight to the nearest creek or river in a matter of a few minutes. Look at any developed area and you see tens of thousands of acres paved over like this. A heavy rain can completely overwhelm rivers and creeks. The ground is not absorbing any of the water and inevitably leads to floods.

Q: Is flooding becoming more prevalent because of global warming?

Leonida: This is a hot topic and there are a lot of strong opinions on this issue. It is fiercely debated in the political arena and constantly splashed across media headlines.

There are many skeptics who question if this really happening to our earth – and if man is causing global warming. It seems like everyone has a theory for what causes climate change.  

I’m one of the believers, who thinks man is contributing to global warming. The oceans are getting warmer and the ice is melting at the poles so rapidly that I am afraid the ice will only be seasonal.

Unfortunately, the changing climate means that some animals like polar bears will have nowhere to go. Extinction is a possibility for many species that may be unable to adapt to their new environment at the same speed the climate is changing.

Another reason I believe man-made global warming exists is because we have been witnessing extreme weather during the last several years. We have more frequent and more intense storms, flooding, droughts, heatwaves and snowfalls.

Q: How are floods affecting the housing industry?

Leonida: The building industry and financial investors are finally taking notice of the effects of weather and reviewing climate risk data. They are taking a leadership role within cities and counties to mitigate the effects of potential sea-level, increased storm surges and inland flooding rise by building homes above the base flood elevation. They are taking notice now because they recognize the potential for significant financial loss in the housing and banking industry.

Q: What can mortgage servicers do to address the changes in flood activity?

Leonida: It is imperative now, more than ever, that servicers be up-to-date with any Federal Emergency Management Agency (FEMA) map changes. A flood zone provider must notify the servicer in enough time with any changes in the flood zone that may affect the collateral and to safeguard the servicer’s portfolio.

Each year, FEMA examines and reexamines flood hazards in communities across the U.S., revising them as necessary – such as in Colorado Springs, Colo., and Brazoria County, Texas. FEMA will prioritize these efforts where development is the greatest and where the maps are most outdated.

Servicers should partner with a flood zone determination company to ensure they have the most recent flood zone determination on their collateral, thus ensuring that their portfolios are compliant with the National Flood Insurance Act of 1994.

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