Blue-lining: How Banks are Factoring Climate Change into Mortgage Decisions

As climate change accelerates, a growing number of homes across the country have been destroyed by more frequently occurring natural disasters. In California, wildfires have always been a threat, but they’re now hitting record-breaking levels as temperatures get hotter and rainfall becomes scarcer. 2020 saw 9,917 fires burn a total of 6,653 square miles, and 2021 is already outpacing those stats. Other areas of the US, like New York City, are seeing unprecedented levels of flooding.

Unless there are drastic changes in how world governments deal with climate change, the scientific evidence shows that these natural disasters won’t be letting up—and now banks are factoring that data into how they make mortgage decisions.

This process is being called “underwaterwriting” or “blue-lining” depending on the context. The former term is a reference to “underwriting,” a system a lender uses for anyone applying for a mortgage, where they use your credit and financial history to decide your loan eligibility. Underwaterwriting has banks taking into consideration climate science, catastrophe modeling, and insurance modeling when assessing a home’s value.

Blue-lining is a reference to redlining, a practice rooted in institutionalized racism, where mortgage availability was limited in predominately non-white communities. Blue-lining is the line of risk lenders are drawing around certain neighborhoods that are more susceptible to flooding or any other natural disasters.

Blue-lining and redlining are proving to go hand-in-hand—according to new research, “historically redlined neighborhoods suffer a far higher risk of flooding today.” This is thanks in large part to divestment in these communities which results in a lack of infrastructure to keep homes and people safe during floods.

Whether you live in a historically redlined community or not, climate risk will absolutely factor into the value of your home. If you have any questions about how underwaterwriting might affect you, don’t hesitate to contact us by email or gives us a call at (323) 412-9060.

Leave a Comment