Wildfire Risk and Mortgage Lending: The Influence of Climate-Risk Beliefs

Publication Date

9-1-2026

Document Type

Article

Publication Title

International Review of Financial Analysis

Volume

117

DOI

10.1016/j.irfa.2026.105323

Abstract

Wildfires can significantly disrupt local economic activities and housing prices, leading to a higher risk of loan defaults. We examine the relationship between wildfire risk and access to residential mortgage credit. Given the increasing threat of climate change worldwide, understanding its implications for residential lending standards is crucial for policymakers. Our results show that wildfire declarations are associated with lower mortgage loan approval rates among local lenders in affected counties. Additionally, the relationship between wildfires and loan approval decisions is concentrated in areas with stronger climate-risk beliefs, consistent with the interpretation that heightened awareness of disaster risk contributes to this relationship. These results are robust across various tests, including the use of propensity score matching (PSM), an instrumental variable approach, placebo tests, and controls for securitization, homeowner insurance premiums, and lender competition.

Funding Sponsor

Boise State University

Keywords

Climate change belief, Local lenders, Mortgage credit, Natural disasters, Residential lending standards, Wildfire risk

Department

Accounting and Finance

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