Boy, it’s been a year and a half. It's hard to imagine another existential crisis after dealing with (or simply surviving) the pandemic, social unrest, unprecedented unemployment, and stock market turmoil.
Yet this August, scientists sounded the alarm (again) about the dire effects of climate change. But this time, things seem to be getting worse. So much worse that financial institutions are taking action. How? In the form of bluelining. And it’s maybe not in our best interest.
Below I’ll explain bluelining, plus how to protect your finances from any negative impacts.
What is bluelining?
Bluelining — sometimes called “underwater writing” — is the process that banks and insurers are now using to draw lines around areas at risk of climate disasters. Buying and insuring real estate in these high-risk areas may become more and more complex, if not impossible soon.
Perspectives on bluelining
More research needs to be done about bluelining, but here are some of the conflicting viewpoints.
From a mortgage lending perspective
For mortgage lenders, underwater writing makes sense. They weigh climate data against home values and the financial risk of lending in those areas during the underwriting process. Where risk levels are high, mortgage lending becomes cost-prohibitive for the bank.
From a homeowner’s perspective
For homeowners, though, bluelining may mean that interest rates and the cost of insurance go up. Borrowers may be denied a loan for a seemingly arbitrary reason — they aren’t shown the magic map that banks and insurers use to make their decisions.
From a historical perspective
To Black families, bluelining may seem a lot like redlining—the discriminatory practices of refusing to originate mortgage loans in black neighborhoods. In the 1930s, “high-risk lending zones” were usually urban, minority-populated areas labeled in red on the Federal Housing Administration (FHA) map.
From a taxpayer’s perspective
Vast swaths of coastal areas in the U.S. are constantly battered by hurricanes and likely underwater in the next 30 years. According to the New York Times, “The federal National Flood Insurance Program has paid to rebuild houses that have flooded six times over in the same spot.”
Some may balk at the idea of taxpayer dollars continually bailing out individuals, banks, and insurers who invested in risky areas.
From the Federal government’s perspective
The Fair Housing Act was meant to protect people from discrimination in lending. But the new practice of bluelining seems to impact the same people harmed by redlining negatively. If you take a look at Mapping Inequality, you can see how lending practices and housing policies shaped American’s wealth.
What to do and where to look for help
As climate change evolves, governments and businesses alike scramble to predict and mitigate its negative financial consequences. Yet, it has often been individuals who ultimately bear the brunt of a disaster. Banks and FEMA may fail to protect your assets from the next wildfire, flood, or drought. Fortunately, you can take steps now to prevent a disaster from ruining your finances. Here’s how.
Check your current insurance
The first thing to look at is your current insurance policy. According to the Insurance Information Institute, standard homeowners’ and renters’ policies should cover damage from wildfires. Tornadoes are also generally covered because they’re classified as “windstorms.”
But most insurance policies don’t cover damage from earthquakes or floods. And hurricane damage is sometimes not covered in coastal areas, so check your insurance policy and evaluate your coverage vs. savings (if you need to self-insure).
Look at your flood plain
Once you’re aware of your coverage, you should check your risks. Go to First Street Foundation’s website to evaluate your area’s flood factors. You can also visit
freehomerisk.com to check your address for risks related to earthquakes, fires, droughts, hurricanes, tornados, tsunami, floods, sinkholes, or nuclear sites.
Sell your house and move
If you own a home in a high-risk area, you may want to sell your house sooner rather than later. That’s because someday in the future, banks may refuse to lend to a prospective buyer for your home. So it would be in your best financial interest to get out while you can still benefit from a home sale.
Avoid buying in flood zones
Before you buy a home, check whether or not it’s located in a flood zone. Even if it’s not in one now, that could very easily change as climate risks shift over time. If you can’t afford flood insurance, just don’t buy a home in or even near a flood zone. Period.
Buy flood insurance
If you do own a home in a FEMA-designated flood zone, you have to buy flood insurance. Congress requires flood zones to be updated every five years, but weather patterns and disasters can change during that time. Even if it’s not necessary for you now, flood insurance may still be a worthwhile purchase. When you factor in possible future catastrophes, flood insurance could help you avoid foreclosure, having to rebuild a home, or relocating to another part of the country.
Costs of bluelining
Climate-related disasters cost the U.S. $95 billion in damages in 2020. These events included Hurricanes Laura and Sally, the midwest derecho, and western wildfires. The highest costs from damage occurred in the South, Central, and Southeast parts of the U.S.
On the other hand, the cost of bluelining is already apparent. Flood-prone properties sell for 15% less than similar, non-flood-prone properties. This could come at a huge cost to those communities because the tax base will inevitably shrink, leading to less and less funding for flood prevention and infrastructure. It’s a vicious circle.
If you buy federal flood insurance, expect rates to increase by approximately 10%, starting this year. The rise in cost is due to FEMA’s new model of factoring in a home’s replacement cost, as well as predicted sea-level rise, drought, and wildfires related to climate change.
Pros/Cons
Bluelining is evidence that everyone is taking climate change more seriously.
It helps to protect potential buyers from investing in areas at risk from climate disasters.
It could spur more social and economic policy change.
Blue-ining maps can deepen disparities in lending practices.
Some people could be denied homeownership.
Homeowners may not be able to recoup the lost value of their homes.
The bottom line
Financial institutions are using climate change risk as an excuse to refuse to lend in certain areas. This practice of bluelining harms existing and prospective homebuyers. The value of homes will decrease as fewer banks are willing to approve mortgages, and fewer people qualify to buy a home near where they live. Community infrastructure will suffer neglect, and people already strapped for cash may be forced to migrate to other areas.
But as a society, how else can we ensure that the financial institutions remain solvent? How else can we ensure that the price of financial disasters doesn’t ultimately fall on the shoulders of the federal government and taxpayers? Few alternatives exist. The best thing to do as individuals is to prepare the best we can. Get good insurance. And move if you need to.
