As of the afternoon of October 10th, the Federal Emergency Management Agency (FEMA) placed a total of 171 counties across Florida, Georgia, South Carolina, and North Carolina under a disaster declaration due to the effect of Hurricane Matthew in these areas.
A recent report from Kroll Bond Rating Agency (KBRA) has evaluated exposure to the counties identified by FEMA as having a disaster declaration related to Hurricane Matthew as of October 10, 2016 to identify properties in the related securitizations by matching loan-level ZIP codes to the affected counties. In doing this, the agency is evaluating the exposure across its outstanding ratings spanning 61 prime jumbo PLS (“Prime 2.0”) transactions and 14 agency credit risk transfer transactions (CRT). This process for identifying exposures is more likely to indicate a ceiling to exposure rather than actual exposure to damage as effects of the storm may be localized within a given county.
Across 61 “Prime 2.0” transactions, with total collateral balance outstanding of $15.22 billion, it was found that 0.3 percent of current collateral balance is located in the seven “Major Disaster” counties. This is compared to the 3.0 percent that is located in all 171 “Emergency and Major Disaster” declaration areas. Likewise, it was found that across 14 CRT reference pools, 0.7 percent of original collateral balance is located in the “Major Disaster” counties compared with 6.5 percent being located in all 171 “Emergency and Major Disaster” declaration areas.
KBRA says that the impact on loan performance for both defaults and loss of natural disasters such as hurricanes can be idiosyncratic and dependent upon a multitude of factors. Research on prior major storms has shown that seriously delinquency in loans can spike after a natural disaster. Despite this fact, though, such spikes in delinquency can be short-lived.
The report also noted that most, if not all, non-agency originators and conduits require newly originated loans to carry flood insurance when the loan is located in an applicable flood zone. More specifically, Fannie Mae and Freddie Mac generally require flood insurance for any residential property located in a Special Flood Hazard Area and an agency loan will also typically be required to include extended property insurance coverage. This generally includes coverage for wind and does not typically allow for limits to coverage for windstorm or hurricane damage. It is noted, though, that properties located outside of these flood zones may lack specific flood coverage posing potential issues.
In addition, KBRA writes that homeowners in “Major Disaster” areas can potentially benefit from FEMA’s Individuals and Households Program (IHP). IHP is a federal financial assistance program designed to provide money and services to homeowners for damages not covered by insurance, and such assistance may include temporary housing, repairs, replacement, or other needs.