FX168 Financial News (North America) reports that Federal Reserve Chairman Powell told Congress that the spiraling Insurance crisis in the USA means future difficulties in obtaining mortgages.

Powell stated that the increasingly severe crisis in the Insurance industry could make it difficult to obtain mortgages in certain areas of the country for decades to come.

In his semiannual testimony to Congress, he said, "If you fast forward 10 or 15 years, there will be some areas in the USA where you will not be able to get a mortgage." He pointed out that Banks and Insurance companies have been withdrawing from coastal and disaster-prone areas that they consider too risky.

As climate change exacerbates natural disasters, Insurance companies have been canceling policies across the country, causing billions of dollars in losses. For example, State Farm canceled thousands of policies months before wildfires destroyed the Pacific Palisades Community in Los Angeles.

Since mortgage lenders typically require homeowners Insurance as a condition of the loan, an increasing number of potential buyers with few options are purchasing Insurance from nationally designed Insurance companies, whose premiums may be higher and cover less than traditional options.

In response to a question from the Senator from Minnesota, Powell noted that when faced with evidence of disasters, Banks and Insurance companies will not continue to provide loans or Insurance.

In Powell's testimony, the issue of high housing costs repeatedly surfaced. The Federal Reserve Chairman reiterated that normalizing interest rates might help buyers in the coming years, but many affordability issues boil down to a lack of supply, which is an issue beyond the purview of the Federal Reserve.

In response to a Senator's question, Powell stated, "There is a short-term problem that will disappear in a few years, but the housing affordability issue is a long-term problem that will be beyond our power or scope."

Powell said that even if interest rates do decrease, lower rates would slow housing inflation because demand could rise, which is "not obvious."

(Image source: finance.yahoo)

Powell said: "This will free people from low mortgage rates, but it will create both buyers and sellers. It is still unclear whether this will reduce housing inflation."

When asked about the future of Fannie Mae and Freddie Mac, Powell stated that government support for the mortgage giants "did indeed control mortgage rates." He indicated that ultimately releasing them from conservatorship is a matter for Congress, adding: "In the long run, putting housing finance back in the private sector has some appeal."