Category: Homeowners

The real reason State Farm won’t sell home insurance in California anymore

Mary Pat Campbell

Link: https://www.washingtonexaminer.com/restoring-america/courage-strength-optimism/the-real-reason-state-farm-wont-sell-home-insurance-in-california-anymore?utm_source=deployer&utm_medium=email&utm_content=&utm_campaign=Beltway+Confidential&utm_term=

Excerpt:

I spoke to Rex Frazier, president of the Personal Insurance Federation of California, who cited several policies that no doubt contributed to State Farm’s decision to stop issuing policies, including various price controls that prevent insurers from raising prices to meet surging costs without the written approval of the California Department of Insurance.

“California is the only state in the country that doesn’t allow insurers’ rates to be based upon actual reinsurance costs,” Frazier said. “California’s regulations employ a legal fiction that each insurer uses its own capital to serve customers. As reinsurance costs go up, insurers cannot have their rates reflect those higher costs.”

Author(s): Jon Miltimore

Publication Date: 2 Jun 2023

Publication Site: Washington Examiner

Why Insurers Are Fleeing California

Mary Pat Campbell

Link: https://www.wsj.com/articles/state-farm-homeowners-insurance-california-2a934a22?st=0vc5cbqwbedf0b2&reflink=desktopwebshare_permalink

Excerpt:

State Farm General Insurance Co. last week became the latest insurer to retreat from California’s homeowners market. The culprit isn’t climate change, as the media claims in parroting Sacramento talking points. The cause is the Golden State’s hostile insurance environment.

The nation’s top property and casualty insurer on Friday said it won’t accept new applications for homeowners insurance, citing “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

In other words, State Farm can’t accurately price risk and increase its rates to cover ballooning liabilities. Other property and casualty insurers, including AIG and Chubb, have also been shrinking their California footprint after years of catastrophic wildfires, which are becoming more common owing to drought and decades of poor forest management.

Author(s): Editorial Board

Publication Date: 30 May 2023

Publication Site: Wall Street Journal

APPENDIX 1: MAJOR HURRICANES IN TEXAS AND THE U.S. —A HISTORICAL PERSPECTIVE

Mary Pat Campbell

Link: https://comptroller.texas.gov/economy/fiscal-notes/2018/special-edition/history.php

Graphic:

Excerpt:

In a typical year, about 100 storms and tropical disturbances develop in the Atlantic Ocean, Caribbean Sea and Gulf of Mexico. Some of these turn into tropical storms, and on average, two each year become hurricanes that make landfall in the U.S.40 Between 1851 and 2016, 289 hurricanes affected the continental U.S. Of these, 63 made landfall in Texas.41

….

Of course, hurricanes and other major storms affect the entire country, not just the Gulf Coast. Exhibit 6 lists the most destructive storms affecting the U.S. in the last half-century.

Hurricane Katrina, which caused $161.3 billion in damages, still ranks as the costliest storm in American history; Hurricane Harvey is expected to rank second, with total estimated damages of about $125 billion.45

Publication Date: February 2018, accessed April 2023

Publication Site: Fiscal Notes, Comptroller of Texas

The Lending Hole at the Bottom of the Homeownership Market

Mary Pat Campbell

Link: https://www.newamerica.org/future-land-housing/reports/the-lending-hole-at-the-bottom-of-the-homeownership-market/

Graphic:

Abstract:

While conventional wisdom maintains that high home prices are to blame for declining homeownership rates, there is another elusive barrier stopping millions of would-be homeowners: banks are increasingly unwilling to write small dollar mortgages. One fifth of owner-occupied homes in the United States cost less than $100,000, but due to unintended consequences of the Dodd-Frank Act, among other factors, banks are opting out of writing small dollar loans. Instead, more than three quarters of small dollar homes are purchased in cash, often by investors or well-off individuals. This lending gap locks millions of low-and-moderate income families out of homeownership, and exacerbates the racial homeownership gap as these small dollar homes are a critical source of homeownership for many first-time buyers in Black and Hispanic communities.

In this report, the Future of Land and Housing program at New America and the Center for the Study of Economic Mobility (CSEM) at Winston-Salem State University (WSSU) focus on three dimensions of this problem: 1) the unavailability of financing for small dollar loans; 2) the catch-22 of “mortgage standards”; and 3) competition with all-cash buyers at a national level and through a local case study of Winston-Salem and Forsyth County, North Carolina.

Author(s): Sabiha Zainulbhai, Zachary D. Blizard, Craig J. Richardson, Yuliya Panfil

Publication Date: 9 Nov 2021

Publication Site: New America

From the Archives: “How Dodd-Frank Locks Out the Least Affluent Homebuyers”

Mary Pat Campbell

Link: https://vpostrel.substack.com/p/from-the-archives-how-dodd-frank?utm_source=substack

Excerpt:

This Axios report on a JPMorgan Chase program giving black and Latino borrowers $5,000 toward down payments or home loan closing costs reminded me of a column I wrote in November [2021].  It’s about one of the most infuriating public policy fiascos I’ve run into in a very long time. Hardly anyone knows about this regulatory devastation of household wealth amog people whose inexpensive homes represented years of thrift and hard work. (The only reason I learned of it is that I happened to meet Craig Richardson at an unrelated conference.) It is absolutely heartbreaking. It reminds me of the famous quote from The Great Gatsby: “They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.”

….

About one in five U.S. homes are valued at $100,000 or less. And despite their low prices, they’ve gotten extremely hard to sell. When they move at all, these small-dollar properties tend to go for cash. Lenders increasingly won’t write mortgages for them.

“Over the last decade, origination for mortgage loans between $10,000 and $70,000 and between $70,000 and $150,000 has dropped by 38 percent and 26 percent, respectively, while origination for loans exceeding $150,000 rose by a staggering 65 percent,” reports a new study on small-dollar mortgages from the Center for the Study of Economic Mobility at Winston-Salem State University and the Future of Land and Housing program at the New America think tank. The study is scheduled for release on Tuesday [Nov 9, 2021].

The culprits behind the disappearance of small-dollar mortgages are lending restrictions enacted with good intentions and warped by economic blind spots. Designed to protect borrowers and the financial system, the Dodd-Frank Act regulations passed in the wake of the 2008 financial crisis “increased the fixed costs and the per-loan costs of extending a mortgage,” says the study. The regulation-imposed costs made small-dollar mortgages a lousy proposition for lenders.

Compounding the problem, the Consumer Financial Protection Bureau then limited the fees that lenders could charge as closing costs. For profit-oriented lenders, small-dollar mortgages are no longer worth the trouble. At best, they squeeze out the tiniest of margins. At worst, they don’t even cover the fixed cost of processing the loan.

Author(s): Virginia Postrel

Publication Date: 25 June 2022

Publication Site: Virginia’s Newsletter at substack