All homeowners are concerned about protecting their homes from natural disasters, but it is a priority for those who reside in areas prone to hurricanes, tornados, wildfires and floods. Mortgage originators can be a vital resource to their clients who reside in perilous areas, helping them to make prudent choices to protect their homes.
As a mortgage borrower, it’s essential to have a clear understanding of the risks associated with acquiring property in disaster-prone areas. Natural disasters caused $165 billion in damage in the U.S. in 2022, the third most-costly year since 1980, according to the National Oceanic and Atmospheric Administration (NOAA).
Mortgage professionals should take the time to educate their clients about the potential risks and liabilities associated with purchasing real estate in areas prone to natural disasters. This includes providing information on the specific risks associated with the property, such as flood zone designations or soil liquefaction zones, and helping clients understand the insurance requirements and expenses associated with these risks.
“Owning a home in a high-risk area comes with its own set of challenges — for example, how the potential impact of a natural disaster might affect property values or resale prospects.”
By helping their clients understand the risks involved in acquiring properties in disaster-prone areas, originators can help them make more informed decisions about their investments and avoid any financial pitfalls that may arise. Ultimately, a mortgage originator who truly cares about their clients’ well-being will prioritize education and transparency, providing guidance and support to help them make sound financial decisions that align with their goals and interests.
As trusted financial professionals, loan originators can offer valuable guidance to their clients in these high-risk locations. By understanding the threats, implementing preventive measures, executing emergency preparedness, and being aware of the rebuilding and recovery process, mortgage originators can empower their clients to mitigate risks and minimize potential damages.
Perilous areas
To effectively serve their clients in these risk-prone regions, originators must first have a thorough understanding of the location-specific hazards. Local climate patterns, historic data on past events and the specific dangers posed by disasters prevalent in the region will help originators educate their clients.
They can apprise them of the potential hazards to their home and offer appropriate recommendations. For example, homes in South Florida are part of a weather pattern known as Hurricane Alley. Florida has been hit by twice as many hurricanes as the next closest hurricane-prone state, which is Texas. Of the 308 hurricanes that have hit the U.S. since 1851, 125 have made landfall in Florida, according to NOAA.
“Mortgage professionals should take the time to educate their clients about the potential risks and liabilities associated with purchasing real estate in areas prone to natural disasters.”
Consequently, it behooves originators who work in Florida to be knowledgeable about the frequency and severity of hurricanes in the state, the typical paths these storms follow, and the potential damage caused by gale-force winds, potent storm surges and massive flooding. Originators should also be familiar with local building codes and zoning regulations that are intended to moderate hurricane risks, such as requirements for impact-resistant windows or hurricane straps for roof reinforcement.
Similarly, in tornado-prone areas, originators should be aware of the frequency and intensity of storms in the region, the typical paths they follow, and the possible damage caused by strong winds, flying debris and structural collapse. They should also be familiar with any local tornado warning systems, evacuation plans and emergency shelters to inform their clients accordingly. About 1,150 tornados were recorded in the U.S. in 2022, NOAA reported. Over the past three decades, Texas has seen the most tornados with an average of 150 each year, followed by Kansas at 91 and Oklahoma at 68.
Wildfire-prone areas possess their own disastrous risks. Besides being aware of the frequency and severity of wildfires in their region, originators should understand the typical causes of wildfires, as well as the potential harm caused by raging fires, flying embers and deadly smoke. And they should be familiar with any regulations or guidelines for creating defensible spaces (fire breaks) around homes, along with the use of fire-resistant building materials.
California led the nation with 9,280 wildfires in 2021 and more than 2.2 million acres burned, according to the Insurance Information Institute. Texas recorded the next highest number at 5,576, although only 168,000 acres burned. Oregon and Montana had fewer wildfires (2,202 and 2,573, respectively), but these disasters burned more land — about 828,000 acres in Oregon and 747,000 acres in Montana.
By having a solid understanding of the specific risks posed by extreme weather events where their clients’ homes are located, originators provide crucial services. They can make clients aware of potential hazards, provide reliable resources for weather alerts and updates, help to assess the vulnerability of homes and recommend the necessary preventive measures to reduce risks.
Advanced preparations
For homeowners in disaster-prone areas, having proper insurance coverage is vital. Naturally, homeowners will consult with their own insurance professionals to make sure they have sufficient coverage. But as trusted advisers, mortgage originators can also inform their clients on the necessity of insurance coverage that specifically addresses the risks in the areas where they are buying or refinancing a home.
Originators can also educate their clients about the different types of insurance coverage (including homeowners insurance, flood insurance and windstorm insurance), and help them understand the limitations, deductibles and exclusions that may apply to these policies. They can advise homeowners on the importance of regularly reviewing and updating their insurance coverage to ensure it is adequate for protecting their homes and belongings against potential risks.
Given their broad real estate expertise, mortgage originators can also advise their clients on the wisdom of preventive measures. They can stress the importance of reinforcing roofs, installing impact-resistant windows and doors, and securing loose objects in the yard.
They can also educate their clients on the importance of having a disaster preparedness plan in place. This might include emergency supplies such as food, water, flashlights, batteries, candles, a portable generator and a first-aid kit. It is also important to have detailed evacuation and family reunification plans in place, and to know the exact location of the nearest emergency shelter.
Finally, originators can suggest that homeowners set aside a financial emergency fund to help with unexpected expenses in the event of a disaster. This can include expenses such as deductibles, repairs, temporary housing and other unforeseen costs that may not be fully covered by insurance.
Informed decisions
If a homeowner’s property is damaged or destroyed by a natural disaster, originators can offer their clients assistance in the rebuilding and recovery process. This might include working with insurance companies to file claims, or negotiating any challenges or disputes that may arise during the claims process.
Originators can be a good source of information on available assistance, such as government relief programs, disaster recovery loans and other forms of financial aid. Additionally, originators can help homeowners understand the implications of rebuilding or repairing a home in a high-risk area. For example, homeowners may be required to comply with updated building codes or regulations intended to reduce the risks of future natural disasters. Originators can help homeowners analyze the potential costs and benefits of complying with such regulations.
After a disaster, it is also important for homeowners to conduct thorough inspections and assessments of their homes to identify any potential structural or environmental hazards. Originators can counsel clients about this process to ensure that a home is safe before moving back in or initiating repairs.
Owning a home in a high-risk area comes with its own set of challenges — for example, how the potential impact of a natural disaster might affect property values or resale prospects. In these zones, it might be more difficult to sell a home due to lower demand, or there might be increased insurance costs. There could also be a stigma associated with the region due to its history of disasters. By providing insights into these factors, originators can assist homeowners in making informed decisions about their long-term plans and exit strategies.
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In addition, originators can be an invaluable conduit to other experts in their respective fields. These might include insurance agents, contractors, inspectors and disaster preparedness specialists. These kinds of referrals can help homeowners connect with professionals who can provide specific advice and assistance tailored to their unique needs and circumstances. ●
