Report
Unintended Consequences of "Mandatory" Flood Insurance
Abstract: We show that the National Flood Insurance Program inadvertently concentrated flood risk among households least able to bear it. Using nationwide flood map data, HMDA records, and credit panel data, we show: (i) insurance mandates reduce mortgage lending, particularly for low-income applicants, (ii) these households disproportionately sort into areas immediately adjacent to flood zones, where credit is still available to them but actual flood risk remains, (iii) following disasters, households in these areas experience sharp increases in debt and delinquency rates. Our results show that binary insurance mandates, which are not reflective of true underlying risk, have adverse unintended consequences.
JEL Classification: G21; G28; Q5; Q54;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2022-04-01
Number: 1012
Note: Revised July 2026.