Hurricane Sandy is likely to cause more delinquencies within pools of residential mortgage-backed securities that are collateralized by properties damaged in the storm, Fitch Ratings said.
But while RMBS loans are expected to see higher delinquency rates in the months to come, the ratings giant says the overall impact of Sandy on residential mortgage bonds is likely to be minimal.
To reach this conclusion, Fitch examined what happened to RMBS pools in the wake of Hurricane Katrina, which socked the Gulf Coast in 2005, leaving 1,800 dead and countless homes damaged.
After Katrina, mortgage loan delinquencies in areas impacted by the storm tripled from 17% of all loans outstanding to 45%. But within a year, delinquencies fell back to only 25% of all mortgages outstanding. The delinquencies dropped as families returned home, insurance proceeds were paid out and businesses reopened their doors.
By the time residents returned, delinquencies had edged up 47%, or 1.4 times the initial delinquency level set before the storm.
"Although the disruption caused by Sandy will likely prove to be significantly less than that caused by Katrina, a similar 1.4x 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% of outstanding RMBS mortgage loans," Fitch said.
Second homes located in the affected New England states are expected to be disproportionately impacted. Yet, they account for only 1% of total mortgage pools.
Fitch does not anticipate the placement of a ratings watch for RMBS classes because of the storm.