The risk to mortgages and delinquency increases in the months following a natural disaster can be substantial. In a report from CoreLogic, Amy Gromowski, Senior Leader, Science & Analytics for CoreLogic, discussed how deep the impact form a natural catastrophe can go, not just to property damage, but to homeowner finances in the long term.
“When discussing the impact of natural catastrophes, the amount of property damage is well covered,” said Gromowski. “But what about the financial impact on homeowners well after the catastrophe event is over? How do people manage to pay their mortgage while also paying to reconstruct their homes? In addition, the closing of schools, blocked routes to work, and damage to their place of employment often cause disruption in income.”
In a case study conducted in the aftermath of Hurricane Harvey in Texas, CoreLogic found that FEMA designated counties following Hurricane Harvey saw a significant increase in 90+ day delinquency when compared to delinquency rates just six months prior. In these counties, properties estimated to be damaged saw a 205 percent increase in 90+ day delinquency, and undamaged properties saw a 167 percent increase in 90+ day delinquency.
Following a disaster, the costs associated with repairs can add up. In addition to the delinquency impact, CoreLogic studied the costs of damage repair from flooding following Harvey. According to Gromowski, high amounts of damage can result in negative equity.
“Let’s say a house has a market value of $300,000 and the homeowner has 30% equity in their home. If they sold their home for $300,000, they would walk away with $90,000 after paying the outstanding loan amount of $210,000,” said Gromowski. “If the same home experienced $100,000 in damage due to the event, the homeowner must pay $100,000 to repair the damage, or sell the home at a significant discount. From the homeowner’s perspective, they have negative equity.”
Homeowners covered by the National Flood Insurance Protection or in a Presidentially Declared Major Disaster Area (PDMA) will receive some funding for repairs, but CoreLogic notes that PDMA FEMA payouts are often not enough.
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