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Hurricane Florence’s Impact on Reverse Mortgage-Backed Securities

hurricane vortexWith Hurricane Florence expected to make landfall Friday morning, Kroll Bond Rating Agency (KBRA). Florence is expected to be one of the largest to hit North and South Carolina, and KBRA has identified the potential exposure in its rated reverse mortgage-based securities (RMBS) portfolio.

According to KBRA, the Carolinas include 4.18 percent of the collateral backing the agency's rated RMBS 2.0 portfolio. Additionally, KBRA notes that the potential impact to coastal areas only includes 0.76 percent of the collateral from properties backing its rated RMBS portfolio. The report also included overall collateral concentrations by county in the Carolinas. The Core-Based Statistical Areas (CBSAs) covering Charleston, Myrtle Beach-Conway and Wilmington represent 0.34 percent, 0.19 percent, and 0.12 percent respectively of total pool balance within the agency's rated RMBS portfolio.

KBRA’s collateral concentrations in its RMBS portfolio are higher in areas more commonly impacted by major hurricanes such as Florida (5.5 percent), however, the agency noted that potential coastal exposure to Florence was relatively limited as a percentage of KBRA’s rated portfolio.

The report indicated that the impact on loan performance, both defaults, and loss, of natural disasters, such as hurricanes, can be idiosyncratic and may depend on many factors. Prior storms have shown that though seriously delinquency tends to spike following a natural disaster, though they are often short-lived. KBRA also notes that most originators, including the GSEs, require flood insurance typically for areas in Flood Hazard areas. Additionally, homeowners in disaster areas may benefit from FEMA’s Individuals and Households Program, a federal financial assistance program designed to provide money and services to homeowners for damages not covered by insurance.

Hurricane Florence hit the coasts of the Carolinas earlier this week and a new analysis from CoreLogic estimates between $3 billion and $5 billion in losses, which has been expanded to include wind and storm surge, does not include insured losses related to rainfall, riverine or other flooding since the full rainfall footprint is an element in factoring total losses. CoreLogic predicts there will be 250,000 homes in North Carolina affected by the hurricane.

Find the report from KBRA here.

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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