Homebuyers in Wildfire-Prone Areas Get Better Mortgage Deals Online

As climate change increases the threat of destructive wildfires, traditional mortgage lenders are making it harder or more expensive to secure a home loan in fire-prone parts of California. Online lenders are behaving differently. Fintech lenders — companies that originate mortgages primarily online – account for roughly 17% of the U.S. mortgage market. The new research finds they were more likely than traditional lenders to approve mortgages in areas with high wildfire risk and charged relatively lower interest rates there. The findings come from a study published Friday in the Journal of Planning Education and Research. Related: Southern California Edison Pushing for Wildfire Liability Deal Before Lawmakers Depart The authors, Tyler Haupert, an assistant professor of urban studies at New York University Shanghai, and Jesse Keenan, a professor of sustainable real estate and urban planning at Tulane University, examined more than 730,000 California mortgage applications from 2018 through 2020. They sorted the neighborhoods where borrowers were seeking homes into wildfire-risk categories using the Federal Emergency Management Agency’s National Risk Index, which measures factors including historical wildfire exposure, the probability of fires and expected losses to buildings on a census-tract level. The data predates the 2025 Los Angeles fires, and lender behavior may have changed since then. Still, the contrast was pronounced. As FEMA’s measure of wildfire danger increased, traditional lenders became less likely to approve mortgages and charged more for those they did approve. In high-risk neighborhoods, their odds of approving a mortgage were about 15% lower than in neighborhoods with essentially no wildfire risk. Fintech lenders, by contrast, showed little change in approval odds as wildfire risk increased. “The pattern of the traditional lenders is more in line with what our intuition would be,” Haupert said. But determining which approach better reflects the financial danger would require following the mortgages over time to see whether borrowers default or properties suffer losses, he said. Related: California Governor Signs Act to Create Smoke Damage Presumption The pricing patterns diverged too. After accounting for borrower, loan and neighborhood characteristics, traditional lenders charged higher interest rates as wildfire risk increased. Among fintech lenders, the relationship ran modestly in the opposite direction: Borrowers in the highest-risk areas received somewhat lower rates than comparable borrowers in areas with essentially no wildfire risk. Haupert called the fintech result “counterintuitive,” but cautioned that the study doesn’t show wildfire risk caused online lenders to lower their rates. The researchers couldn’t account for factors including individual lenders’ assessments of wildfire danger, property insurance or proprietary underwriting criteria. One possible explanation is the different information available to lenders, said co-author Jesse Keenan. Traditional lenders with local loan officers can incorporate “soft information” — observations and experience that may not appear in the standardized data used by online lenders. Fintech lenders could eventually incorporate more sophisticated climate-risk data, Keenan said. If that causes them to tighten lending in fire-prone areas, homeowners who bought when credit was easier to obtain could find it harder to sell their properties or refinance. The study doesn’t establish that such a shift will occur or that homes in those areas are currently overvalued. In fact, the researchers aren’t saying fintech lenders are getting the risk wrong. Yanjun “Penny” Liao, an economist at Resources for the Future who reviewed the research for a conference at Harvard University in November of last year, called the difference “pretty substantial and compelling.” The key question is who ultimately bears the risk, she said. Fintech lenders could be underestimating it, insurers and homeowners could already be absorbing it through insurance costs, or fintech lenders could be shifting more risk to Fannie Mae and Freddie Mac by securitizing mortgages. “Each of these scenarios will point to potentially different kinds of market failures that we need to be concerned about,” Liao said. Copyright 2026 Bloomberg. Topics Catastrophe Natural Disasters Wildfire