Flood risks to the financial stability of residential mortgage borrowers: an integrated modeling approach

Abstract. Property damage from flooding creates urgent funding needs that uninsured households often struggle to meet, particularly when access to affordable credit is limited. While prior research links floods to higher rates of financial distress, little is known about the prevalence and drivers of credit constraints among flood-exposed property owners. In this study, we use a simulation-based approach to estimate the impact of uninsured damage on residential mortgage borrowers' financial conditions over a series of floods in North Carolina from 1996–2019. Our framework estimates key variables (e.g., damage cost, property value, mortgage balance) to project the number of flood-exposed borrowers experiencing credit constraints due to negative equity, liquidity issues, or both in combination. Conservative projections suggest that the seven floods evaluated generated USD 4.0 billion in property damage across the study area, of which 66 % was uninsured. Among flood-affected mortgage borrowers, only 48 % had insurance, and 32 % lacked sufficient income or collateral to finance repairs through home equity-based borrowing, making their recovery uncertain. By identifying which borrowers are likely to have unmet funding needs due to flood-related credit constraints, these results can inform the design of interventions to improve the financial resilience of flood-prone households.