The widespread damage along the Mid-Atlantic and Northeast coast created by Hurricane Sandy is unlikely to result in any lasting effect on U.S. residential mortgage-backed securities (RMBS) performance, according to new research issued by Fitch Ratings.
The storm resulting from Hurricane Sandy has left millions without power, has caused extensive flooding and has resulted in at least 50 deaths. Although total damage figures will not be known for some time, several preliminary estimates have projected the total economic losses could be over $20 billion.
To assess the storm's impact on RMBS performance, Fitch Rating looked to the aftermath of Hurricane Katrina along the Gulf Coast in August 2005. In the months immediately following Katrina, Fitch Ratings found mortgage delinquency rose dramatically in the areas directly affected, almost tripling from 17% to 45% of all loans outstanding. But within a year, insurance proceeds were received and as businesses returned to normal, delinquency quickly improved to 25% in the areas affected.
‘Although the disruption caused by Sandy will likely prove to be significantly less than that caused by Katrina, a similar 1.4-times delinquency increase in the areas most affected by Sandy would generally have a modest overall impact on RMBS pools since the states of New York, New Jersey and Pennsylvania only account for roughly 12 percent of outstanding RMBS mortgage loans,’ says Fitch Ratings. ‘Second-homes will likely be disproportionately affected along the coast, but second-homes within the states most-affected by the storm only account for roughly one percent of the total mortgage pools on average.’
Additionally, Fitch Ratings notes that servicers are better equipped to handle short-term hardships today than they were in 2005 due to the significant investments in mitigation and modification programs over the last several years, thus reducing the threat of long-term payment problems due to a short-term disruption.
(Photo courtesy of Maryland National Guard)