Flood Insurance Repricing as a Mortgage Credit Shock: Evidence from FEMA’s Risk Rating 2.0

with Lily Shen

We study whether actuarial flood insurance repricing is transmitted to real estate markets through mortgage credit. FEMA’s Risk Rating 2.0 replaced the National Flood Insurance Program’s zone-based pricing system with property-level actuarial rates. Using NFIP policy microdata, ZTRAX housing transactions, and HMDA mortgage applications for Florida, we identify tracts exposed to premium increases and examine both housing-price capitalization and mortgage-credit responses. Treated tracts experience an average 2 percent sale-price decline and a 1.4 percentage-point drop in mortgage approval rates. Application volume does not fall detectably, but approval declines are concentrated among low-income applicants, while high-income applicants experience little detectable change. Price effects do not vary systematically with tract-level educational attainment, providing limited support for a pure household-learning explanation. Banks and nonbanks reduce approvals at similar rates, but nonbanks additionally raise interest rates and securitize more originated loans in treated tracts. The results identify a lender-mediated affordability channel: flood insurance repricing raises current and expected total housing costs, and mortgage lenders transmit this shock by tightening credit for borrowers with limited income capacity.

Presented at: AREUEA-ASSA Conference (2027); Cambridge Real Estate Finance and Investment Symposium (2026)*; JRER/UCF Current Issues in Real Estate Symposium, Orlando, FL (2026)*; ARES 42nd Annual Meeting, Destin, FL (2026)

* presented by co-author. Previously circulated as “Who Prices Flood Risk and When: Evidence from Housing Markets.”