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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 22 February 2025 C O V E R S T O R Y riers due to the rush of claims, as well as for the property owners, Francis says. "Insurers are going to spread out their risk," Yerkes said. "Unfortunately, that means even if you live in a low-risk state, which there are fewer and fewer of these days, premiums will increase a lot. There are fewer and fewer safe havens, and those states are going to have to ab- sorb some of the cost of insuring those in other locations." Yerkes expects increases to be as much as 30%, which will impact home affordability, as well as delinquencies. Francis expects insurers to raise deduct- ibles to help mitigate the increase in premiums. "The California insurers don't know what to do yet because this has hit in such a short period of time," Yerkes added. Even before the wildfires hit, some major insurers had stopped providing coverage in Los Angeles. Rebuilding in Los Angeles will be challenging due to the city's difficult building environment and zoning reg- ulations, so the loss of supply will likely increase housing costs across the city, Snyder noted. Impact on Home Affordability W hile rising material and labor costs and any remediation of fire retardants and other hazardous materials will make rebuilding structures more costly than the homes they replace, Daren Blomquist, VP of Market Economics for Auction.com, said he expects there to be no shortage of interest in rebuilding in the Pacific Palisades and surrounding areas that were completely destroyed by the fires. However, the rising costs of homes and insurance will have a negative impact on home affordability, mortgage industry experts agree. Many homes in the areas that have been hit by wildfires or hurricanes are on some of the most desirable land in the country and were owned by the very wealthy, who can afford higher insur- ance rates, Yerkes said. But that won't be the case for everyone impacted by this or future disasters. "I started in mortgage lending 25 years ago, and insurance was an after- thought. It didn't affect your debt-to- income ratio or your qualification. But now it's a completely different animal." The cost of taxes and insurance are having a major impact on home affordability, Francis agreed. "The only good thing is that, during COVID, a lot of people refinanced at very low interest rates. So, we have a large number of bor- rowers that are sitting on very, very low interest rates. They're highly incented to stay where they are and continue paying that very, very low interest rate on their mortgage." More Delinquencies? H owever, some homeowners, includ- ing some who still had outstanding mortgages, won't be returning, Blom- quist acknowledged. "I think the uptick in delinquencies that we're already seeing will likely be continuing due to issues like this," Blom- quist said, referring not only to the wild- fires but also other disasters. "The uptick in delinquencies will eventually trickle down to more foreclosure options that we'll see for our company. But COVID pushed the mortgage servicing industry to get very good at dealing with disasters." Blomquist explained that he expects "we will see not only some government programs step in, but also the mortgage servicing industry help by giving people more time when they've been hit with a natural disaster, [helping provide] plans to start paying their mortgage again." Both the government and industry response remain in the state of flux until the current wildfires burn themselves out, and likely for some time thereafter. Jane Mason, CEO of Clarifire, urged lenders and others in the mortgage in- dustry to communicate often and clearly with borrowers. "I live in Florida and experienced two direct hits with the hurricanes," Mason said. "One of the commonalities between the hurricanes and the wildfires are the communications with the borrowers. We advise our customers, which are large servicers and banks, to be proactive." This sort of proactivity can include informing customers if they automati- cally qualify for forbearances or how to apply for different programs. "What's happening is the lack of coordination between the servicers, the mortgages, the mortgage companies, the insurers, and the FEMA organizations," Ma- son said. "Servicers, banks, insurance companies need not only collaboration but robust technology to manage and respond." "Insurers are going to spread out their risk. Unfortunately, that means even if you live in a low-risk state, which there are fewer and fewer of these days, premiums will increase a lot. —Shawn Yerkes, Group President, Financial Services, Fay Financial