Underwater: household finances after Hurricane Katrina
Posted 2.20.15New research by Justin Gallagher and Daniel Hartley shows that many of New Orleans’ residents saw a reduction to their overall debt after Hurricane Katrina.
New research by Justin Gallagher, assistant professor of economics at Weatherhead, and Daniel Hartley of the Federal Reserve Bank of Cleveland shows that many of New Orleans’ residents saw a significant reduction to their overall debt after Hurricane Katrina and only experienced minor financial setbacks.
While government aid efforts were notoriously slow, roughly two-thirds of New Orleans residents who had flood insurance were able to get a piece of a $6.7 billion in insurance claims paid out to the city in 2005.
“This money got to them pretty quickly,” Gallagher said. “In contrast, the different government assistance programs … took a year or more. Insurance really was and is a mechanism to get the money in the hands of the people that are affected more quickly.”
So homeowners with damaged houses had a decision to make with their flood insurance payouts — use it to repair their damage homes or pay off the remaining mortgage balance?
Gallagher said he and his team expected to see residents in more severely flooded areas struggle with higher financial costs and damaged credit histories following the storm. “It was almost like a no-brainer we expected to find.”
However, what they discovered surprised them.
Read the full article, "Underwater: Household Finances after Hurricane Katrina" by Steven Richmond, published on BadCredit.com, February 19, 2015.