California today: Who owns the risk for earthquakes?

By Thomas Fuller and Inyoung Kang

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A study set to be published next week by a Washington-based research organization argues that the federal government is glaringly exposed to earthquake risk and should be taking steps to protect itself — and American taxpayers — from the next big one.

R.J. Lehmann, a researcher at the R Street Institute, a nonprofit organization that promotes free markets, calculates that the two federally supervised mortgage finance institutions known as Fannie Mae and Freddie Mac could lose as much as $50 billion to $100 billion in a big earthquake because they own so many uninsured mortgages in seismically risky areas like California.

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Residents of Atlanta, Dallas or New York may be thousands of miles from areas at most risk for earthquakes. But they are exposed, Mr. Lehmann argues, because Fannie and Freddie would most likely need a bailout of taxpayer money after a big earthquake.

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Only 13 percent of California homeowners have earthquake insurance, raising questions on whether earthquake insurance should be mandatory for mortgage holders.

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