Policy Studies California

Take a load off Fannie: The GSES and uninsured earthquake risk

Key Points

Unlike fires, floods and tornadoes, mortgage lenders do not currently require insurance for earthquakes, even though they are among the most destructive disasters a property can face.
Fannie Mae and Freddie Mac have $205 billion of uninsured earthquake risk on their books that, in the event of a major disaster, could leave taxpayers with nothing but a pile of rubble to secure those loans. 
Fannie and Freddie should look to transfer this risk to the private market and provide appropriate incentives for property owners to insure their homes and invest in risk mitigation.

With another Northridge-size quake a near certainty over the next 30 years, and with the potential for losses that could top $300 billion, the time has come to take a hard look at all of the options. Taxpayers can no longer be asked to bear the risk that hundreds of billions of dollars could come crashing to the ground in the blink of an eye.


Image credit: Robert Kneschke

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