Managing Flood Risk When '1,000-Year' Floods Seem Common

Hurricane Harvey is the most significant in a recent series of catastrophic coastal and riverine floods impacting communities across the United States. This “1,000-year flood” follows two consecutive years of “500-year” floods in Houston, and Houston is not alone. Just ask Missourians about the “1,000-year” rainfall they experienced this spring, the residents of coastal Georgia, the Carolinas and Virginia about Hurricane Matthew, or Louisianans about last August when a no-name storm triggered “1,000-year” rains, dumping over 2 feet of water on parts of Louisiana. And, the extent of Hurricane Irma’s devastation is still a major unknown. Of course, it doesn’t take a “1,000-year” or “500-year” flood to wreak havoc on a community, as has become all too familiar for communities like Norfolk, Virginia, where it floods so often that the media has dubbed flooding a “certainty.” Indeed, flooding is the most common and expensive U.S. natural disaster, with all 50 states having experienced floods or flash floods in the past five years.

All of this may seem attenuated from the day-to-day business practices of mortgage lenders and servicers, but when communities flood, so do the residential and commercial properties that secure loans. And, when security properties flood, the risk of borrower default increases at the same time that the value of the collateral decreases. Uninsured (or underinsured) flood losses only exacerbate these issues. This risk is garnering increasing attention in the press, and Freddie Mac’s chief economist issued a dire warning about the potential impact on the housing finance market just last year. In light of these increasing risks, lenders should consider prioritizing flood risk management to ensure that they and their borrowers take the right steps to protect themselves.

Originally published in Law360; reprinted with permission.