Monday, August 19, 2013

FLOOD ZONES | Do 30-Year Mortgages Still Make Sense?

Bob Trentlyon at
Yale Football Game.
The following was sent to me via email by my friend Yale Alumnus Robert Trentlyon, who gave me permission a few weeks ago to post any of his missives that appear intended for public dissemination. I post without editing, other than a minor tweak to the headline.

THIRTY-YEAR MORTGAGES IN FLOOD ZONES?

August 19, 2013

The real estate business has survived for years on 30 year mortgages.  Will the banks continue to issue 30 year mortgages if a building is in the flood zone?  In the past a bank could lend money with the assurance that the building would be there for 30 years, and if the owner did not pay his monthly interest, the bank could foreclose.  But what if the building is washed away or under water, then what recourse has the bank? 

This is no longer a hypothetical question.  That is why NYC government should not encourage building in the flood zones of NYC. Locating new construction in a flood plain will just increase the problems NYC has for trying to rescue people whose lives and property are threatened by the next hurricane.  Present plans are dependent on a government bailout when hurricanes or high water do damage to buildings.

The developers are willing to take the risk of flooding, because there is actually no risk to them.  Developers never use any of their own money in developing a new project.  The developer borrows the money and sells the residence to an eager buyer who either pays cash or takes out a long term mortgage.  There is no question new condo owners want a river or ocean view.
    
More than 50% of the land of NYC is safe from flooding.  It is there that new buildings should be located. City government should insist that developers build on higher ground and the Mayor’s grandiose plans that are at sea level should be scrapped or built where damage or destruction from flooding is unlikely to happen.    
The present proposed patchwork plan of defenses will not be sufficient to prevent flooding from the rising ocean or from storm surges. There must be a proven plan that can be used to create barriers high enough and strong enough to keep out the ocean and that can be built higher as the sea level rises.  Even such barriers may only give us another hundred years.