Millions of mortgages hang in the balance as climate risk reshapes the housing market.
A foreclosure tsunami could be looming, with climate-fueled disasters projected to drive a staggering 380% surge in mortgage defaults by 2035, according to analysis by climate-risk firm First Street. The study projects escalating insurance premiums, repair costs from floods, fires, and storms, and declining property values driving mortgage defaults—and potentially $5.4 billion in lender losses annually.
With fewer homeowners protected by flood insurance and rising climate exposure, particularly in states like California, Florida, and Louisiana, vulnerable households are at serious risk. Climate shocks will become financial shocks, and policymakers, lenders, and homeowners alike must confront a new reality: that extreme weather is reshaping housing markets—and foreclosure rates—fast.
1. Flood-prone areas could drive much of the projected 380% surge.
Homes in flood zones—especially unmapped ones—face skyrocketing risks. A single extreme flood can wreck property value, displace homeowners, and lead to mortgage defaults. Many flooded homeowners lack flood insurance or are underinsured, making recovery unaffordable. First Street projects that weather-driven foreclosures—including floods—could rise 380% by 2035.
In those affected zones, repair costs and insurance premiums rise sharply, squeezing household budgets and triggering defaults. As climate intensifies storm patterns across coastal, inland, and flash-flood-prone areas, these risks multiply. The result is a cycle: flood damage leads to unaffordable recovery, which leads to missed mortgage payments and foreclosures—fueling the projected spike in weather-related cases through 2035.
2. Wildfire disasters are amplifying financial strain on homeowners.
Wildfires, increasingly intense and frequent in Western states, contribute heavily to climate-linked foreclosures. While properties burn, insurance premiums or non-renewals spike, pushing owners into default. First Street’s data shows that by 2035 weather-driven foreclosures—including those from fire—could account for 30% of all home repossessions. Even insured homeowners may find deductibles and rebuilding costs unaffordable, especially when multiple properties are affected.
Insurers will withdraw from high-risk zones, and mortgages will become harder to secure or maintain. For communities rebuilding after fire seasons, the debt burden often outweighs recovery aid. The 380% projection includes this cumulative impact—warning that climate-driven fire losses are a foreclosure catalyst in regions built to burn.
3. Insurance price hikes escalate default risks exponentially.
Rising insurance premiums are a silent driver behind climate-related foreclosures. First Street estimates that every 1% increase in home-insurance cost is linked to a 1% rise in foreclosure rates. Insurance companies are exiting risky ZIP codes or doubling down costs, especially in fire, flood, and storm-prone regions. Many low- and moderate-income households—who hold most of their wealth in their homes—find themselves squeezed between rising premiums and fixed incomes.
When coverage becomes unaffordable, homeowners either drop it or face costly gaps. Without sufficient protection, climate-related damage becomes personal debt. All this feeds into the projected 380% surge in weather-driven foreclosures by 2035, disproportionately impacting financially fragile communities.
4. Declining home values in high-risk zones raise equity and lending concerns.
In many disaster-prone areas, market values are declining as buyers flee or lenders reassess risk. Homes once considered strong collateral may no longer provide adequate equity. First Street insight shows weather-driven events will account for up to 30% of foreclosures by 2035. Falling values mean underwater mortgages become more common—making refinancing or selling difficult for distressed homeowners.
Lenders tightening standards may pull back credit, leaving owners with fewer options. In areas repeatedly buffeted by climate disasters, asset depreciation becomes a trigger for financial distress. This cascade—climate damage, declining value, reduced liquidity—is baked into the forecasted 380% increase in weather-related foreclosure rates across vulnerable U.S. markets.
5. Mortgage defaults are rising in areas with outdated flood maps.
Many homeowners believe they aren’t in flood zones—until disaster strikes. Federal flood maps are outdated or miss newly vulnerable areas. First Street notes that one in seven Americans live in areas without required flood insurance—facing foreclosure risks after flood damage. The study projects a 380% surge in climate-driven repossessions by 2035. That stems from both actual water damage and the financial shock of uncovered loss.
Without mandatory flood policies, households bear full replacement cost. Insurers raise rates or withdraw entirely, medical and repair debts mount, and mortgage payments slip. Without clear disclosure and updated maps, many homeowners are blindsided by climate risk—and the financial fallout becomes inevitable for many.
6. Low‑income households bear the brunt of climate foreclosures.
Homes owned by lower-income families are especially vulnerable. These homeowners often live in higher-risk zones, lack savings, and carry high mortgage debt relative to income. First Street warns that weather-related foreclosures could climb 380% by 2035. When disaster strikes—whether wildfires, floods, or storms—these families frequently face costs they can’t absorb.
High insurance premiums or gaps amplify the stress. With limited access to credit or aid, the only option becomes default. The rising tide of climate risk means low-income households aren’t just at higher risk—they are on the front lines of the foreclosure surge projected in the study, demanding urgent attention and targeted support.
7. Lender losses are mounting as climate-driven defaults increase.
Financial institutions aren’t immune. First Street estimates lenders will absorb $1.2 billion in climate-related credit losses in 2025, escalating to $5.4 billion annually by 2035. The projected 380% surge in weather-driven foreclosures is causing banks to rethink risk models. Many mortgage originators still don’t underwrite based on climate hazards. Defaults will rise in fire, flood, and storm zones, and banks will face mounting unrecoverable losses.
Devalued collateral and uninsured defaults create exposure across loan portfolios. This isn’t a minor shift—it’s a structural threat to credit markets. Unless climate risk becomes an essential factor in mortgage underwriting, lender losses will intensify alongside the surging foreclosure rates.
8. Climate gaps in lending models mask emerging risks.
Traditional mortgage underwriting considers credit scores, income, and debt-to-income ratios—but not climate exposure. First Street’s projections show that by 2035, climate-driven foreclosures could make up nearly a third of all home repossessions—a 380% leap. Without incorporating risk from floods, wildfires, or storms, lenders may misprice collateral and misjudge borrower resilience. That leads to poor credit decisions and higher default exposure.
When underwriters begin factoring in climate data, lending could shift toward risk-aware geographies. But until then, homes in high-risk areas remain mispriced—setting the stage for cascading defaults. Adjusting mortgage models to reflect climate reality will be essential to avoid systemic collapse.
9. Local governments face rising housing instability and economic strain.
When homeowners default en masse, cities lose not just residents—but tax revenue and community stability. With First Street predicting weather-related foreclosures rising 380% by 2035, municipalities face plummeting property values and vacancy clusters. Local budgets shrink when homeowners lose ability to pay and governments bear inspection, cleanup, and displacement costs.
Insurance non-renewals and rising premiums make rebuilding unaffordable, compounding the crisis. Public services are strained, and affordable housing becomes even scarcer. This isn’t just individual financial trouble—it’s a community crisis. Cities must plan for the social fallout of foreclosure cascades tied to climate events, especially in high-risk regions.
10. Interstate migration patterns heighten exposure in hotspot areas.
Many people seek cheaper homes in places like Florida, Louisiana, and California—but these areas also bear the heaviest climate exposure. First Street notes that these states represent over half of expected climate-related mortgage losses. The projected 380% foreclosure jump reflects this geographic skew.
When migration meets risk, the result can be a bubble—populations settle in high-hazard zones, only to face future foreclosure when disaster hits. New homeowners may lack adequate insurance or equity, and local lending infrastructure may not account for sudden shifts in risk. The convergence of popularity and vulnerability literally sets up future foreclosure hotspots—unless policies, insurance, and planning catch up first.
11. Flood insurance gaps leave many households exposed and vulnerable.
Flood insurance is optional in many areas—even those facing rising flood risks. With one in seven U.S. homes uninsured, First Street warns these blind spots significantly drive the climate-linked foreclosure crisis. The 380% increase projection includes cases where homeowners lack flood coverage after severe weather damage. When disasters strike, repair costs dwarf savings or home value. Premiums rise, and lenders face rising defaults.
The cumulative effect erodes household financial stability and fuels foreclosure rates. Updated flood mapping, compulsory coverage in high-risk zones, and public awareness are urgently needed to protect both homeowners and the credit system.
12. Policy shifts and disclosure transparency could slow the 380% trend.
Experts warn that better climate risk disclosure, insurance reform, and underwriting transparency can help curb the projected surge. First Street’s model suggests a 380% rise in weather-related foreclosures by 2035—but emphasizes this outcome isn’t inevitable. Policy actions—mandatory climate disclosure during home sales, zoning reforms, subsidized flood coverage, and risk-based lending reforms—could mitigate foreclosure exposure.
If governmental and financial institutions integrate climate risk into decision-making now, they can change the outcome curve. Without these interventions, default trends will follow the model. In other words, the 380% figure is not destiny—it’s a warning. Smart policy and finance adaption could redirect the trajectory toward resilience.