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Is the world becoming uninsurable?

(charleshughsmith.substack.com)
478 points spking | 3 comments | 17 Jan 25 00:32 UTC | HN request time: 0s | source
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teeray ◴[17 Jan 25 15:16 UTC] No.42738381[source]▶
The problem is that in American home-buying, insurance is often compulsory for a purchase with a mortgage. This makes sense from the bank's perspective--they want to insure their collateral. However, the system doesn't really have an answer for "what happens when their collateral becomes uninsurable?" Even though lenders have force-placed insurance, even those insurers can deny coverage in certain circumstances (e.g. flood plain). This puts insurers in a position to de-facto foreclose on not just one person's house, but swaths of houses in regions they (as an industry) deem risky.

I'm not sure what the answer is here other than forcing insurers to insure (which would raise premiums for everyone), or creating meta-insurance of some kind (insurance against becoming uninsured).

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1. trollbridge ◴[17 Jan 25 15:24 UTC] No.42738467[source]▶
If a property is uninsurable, it can be bought for cash. The actual land value can still be mortgaged, too.

Would you want to hold collateral that has a high risk of becoming worthless? You would effectively be self insuring it and would have to price that into a loan you offered.

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2. teeray ◴[17 Jan 25 15:56 UTC] No.42739086[source]▶
> Would you want to hold collateral that has a high risk of becoming worthless?

Of course not, the problem is that all parties were a-okay with the purchase in the first place, and the banks are trying to change the terms when they realize their hand is a losing one after many turns of the game. Sometimes that’s life, and the corporations should be forced to lose instead of changing the rules so the homeowner loses instead.

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3. trollbridge ◴[17 Jan 25 16:14 UTC] No.42739446[source]▶
The rules are that you have to maintain casualty insurance in your property in order to keep the mortgage. If you don’t want to do that, the lender will try to obtain insurance on its own and bill you for it.

The bank is actually the loser here. Property becomes uninsurable, they still hold the collateral, and the borrower can simply walk away on a non-recourse state like California.