Hurricane Irma, which struck Florida in early September, is more likely to result in a wave of early stage delinquencies and defaults than Hurricane Harvey, which hit the Houston, Texas area in late August, recent research from Black Knight shows.
That’s because homeowners in the Houston area generally have more equity in their homes compared to homeowners in Florida.
As a result, homeowners in the Houston area are less likely to “walk away” from their homes.
According to Black Knight’s Mortgage Monitor report, most borrowers impacted by Hurricane Harvey have “significant equity” in their homes.
However, about 350,000 properties in Florida impacted by Irma have negative or near-negative equity.
In other words, in Florida there are significantly more properties that are “underwater” in terms of loan-to-value.
The report shows that 5.3% of borrowers in Hurricane Irma-impacted counties still owe more than their home is worth, with another 5.6% having less than 10% equity.
But in the Houston area, fewer than 0.5% of Hurricane Harvey-impacted borrowers were in negative equity positions – way below the national average of 2.8% – and fewer than 4% had less than 10% equity.
The average combined loan-to-value ratio for homeowners with mortgages in Hurricane Harvey-related disaster areas is 53%, according to the report, with each borrower holding an average of approximately $131,000 in equity.
Ben Graboske, executive vice president for Black Knight Data and Analytics, says that 53% is “a lot of skin in the game and will likely serve as strong motivation for borrowers not to walk away from a storm-damaged home.”
“In addition, over 75 percent of mortgages in the Hurricane Harvey footprint are held in Fannie Mae, Freddie Mac or Ginnie Mae securities,” Graboske says in the report. “Therefore, the bulk of borrowers affected by the storm will be able to find assistance under the various foreclosure moratoriums and forbearance programs that have been instituted.
“While we have already seen an early spike in delinquencies in Hurricane Harvey-impacted disaster areas, with many more likely to follow in September’s data, the combination of available assistance and healthy equity stakes on the part of borrowers are both very positive signs for the long term,” Graboske adds.
One reason why Irma might have a greater impact on delinquencies and defaults compared with Harvey is because it affected most of the state of Florida and thus far more homes.
“The 48 FEMA-declared Hurricane Irma disaster areas include over 90 percent of the state’s mortgaged properties,” Graboske says. “To put this in perspective, that means that by balance, over five percent of all mortgages in the U.S. are included in Hurricane Irma’s disaster areas. Unlike Houston, though, where all-time-high home prices have contributed to a significant reduction in negative equity, home prices in Florida remain 17 percent below their 2006 peak. On average, borrowers in Hurricane Irma-related disaster areas have a combined loan-to-value of 57 percent, somewhat higher than the national average. Of the 3.2 million borrowers impacted by Irma, an estimated 170,000 were still in negative equity positions before the storm, with another 180,000 having less than 10 percent equity in their homes. Due to lackluster home price recovery since the housing crisis, the negative equity rate in Irma’s disaster area is nearly twice the national average.”
Between the two hurricanes, 4.4 million borrowers representing $705 billion in unpaid principal balance were affected, the report states. By volume, the government-sponsored enterprises and Ginnie Mae have the most exposure (3.2 million loans, $466 billion in UPB), but in terms of share of total portfolio exposed, private-label securities (PLS) are most impacted. Nearly one out of every 10 loans remaining in a PLS was impacted by one or the other of the storms.
Not only are 8.3 percent of all of outstanding PLS loans connected to properties within Hurricane Irma-related disaster areas, but over 17 percent of those same borrowers remain in a negative equity position with an additional eight percent having less than 10 percent equity, according to the report.
All in, as many as one in four PLS loans in Hurricane Irma’s path had limited equity available, prior to any potential home price impact due to storm damage.